10-K

File No. 001-33661

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 31, 2007
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period From          to

Commission File Number 001-33661

Guaranty Financial Group Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	74-2421034
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1300 MoPac Expressway South

Austin, Texas 78746

(Address of principal executive offices, including Zip code)

Registrant’s telephone number, including area code: (512) 434-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Common Stock, $1.00 Par Value per Share, non-cumulative	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities the Act. Yes o  No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer, “and” smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o  Accelerated filer o  Non-accelerated filer þ  Smaller reporting company o

(Do not check if a smaller reporting Company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No þ

The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing sales price of the Common Stock on the New York Stock Exchange on December 31, 2007, was approximately $566,073,000. For purposes of this computation, all officers, directors, and five percent beneficial owners of the registrant (as indicated in Item 12) are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or five percent beneficial owners are, in fact, affiliates of the registrant. As of February 29, 2008, there were 35,507,148 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive proxy statement to be prepared in connection with the 2008 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

As filed with the Securities and Exchange Commission on February 29, 2008

TABLE OF CONTENTS

		Page
PART I.
Item 1.	Business		1
Item 1A.	Risk Factors		10
Item 1B.	Unresolved Staff Comments		17
Item 2.	Properties		18
Item 3.	Legal Proceedings		18
Item 4.	Submission of Matters to a Vote of Security Holders		18
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
Item 6.	Selected Financial Data		20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		52
Item 8.	Financial Statements		53
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		92
Item 9A.	Controls and Procedures		92
Item 9B.	Other Information		92
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance		93
Item 11.	Executive Compensation		93
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		94
Item 13.	Certain Relationships and Related Transactions, and Director Independence		94
Item 14.	Principal Accounting Fees and Services		94
PART IV.
Item 15.	Exhibits and Financial Statement Schedules		94
SIGNATURES			97
Savings and Retirement Plan
Supplemental Executive Retirement Plan
2007 Stock Incentive Plan
Director's Fee Deferral Plan
Change in Control Agreement - Executive Officers
Form of Restricted Stock Agreement (Time and Performance Vesting)
Form of Restricted Stock Agreement (Performance Vesting)
List of Subsidiaries
Consent of Ernst & Young LLP
Certification of Kenneth R. Dubuque Pursuant to Section 302
Certification of Ronald D. Murff Pursuant to Section 302
Certification of Kenneth R. Dubuque Pursuant to Section 906
Certification of Ronald D. Murff Pursuant to Section 906

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PART I

Item 1.   Business

DESCRIPTION OF OUR BUSINESS

Overview

We are a holding company organized in 1986 as a Delaware corporation. Our primary operating entities are Guaranty Bank and Guaranty Insurance Services, Inc. We currently operate in four business segments:

•  Commercial banking,

•  Retail banking,

•  Insurance agency, and

•  Treasury, corporate and other.

Guaranty Bank, headquartered in Austin, Texas, is a federally-chartered savings bank that began operations in 1988. Guaranty Bank conducts consumer and business banking activities through a network of over 150 bank branches located in Texas and California and provides commercial banking products and services to diverse geographic markets throughout the United States. Guaranty Bank has consolidated total assets in excess of $16 billion and is one of the largest financial institutions headquartered in Texas. Guaranty Insurance Services, Inc., headquartered in Austin, Texas, is one of the largest independent agencies nationally and is a full service insurance agency emphasizing property and casualty insurance as well as fixed annuities. The insurance agency operates through 17 offices located in both Texas and California.

Our origins date back to 1938, when the original charter was given to Guaranty Building and Loan in Galveston, Texas. In late 1988, Temple-Inland Inc. (“Temple-Inland”) formed Guaranty Bank by acquiring three institutions, including what was then Guaranty Federal Savings and Loan Association. At that time, Temple-Inland’s existing insurance operations, which had begun in the late 1950s, were combined with the banking operations to create a financial services group as a part of Temple-Inland. These banking and insurance agency operations continued to grow during the last two decades, with over 30 acquisitions, and in the late 1990s, began to expand and acquire operations in California. On February 26, 2007, Temple-Inland announced its plans to spin-off Guaranty. We completed our spin-off from Temple-Inland on December 28, 2007.

We maintain a website at www.guarantygroup.com. Information found on our website is not intended to be a part of this report. All filings made by us with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website as soon as reasonably practicable after such filings are made.

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The following chart presents the ownership structure of our primary operating entities. It does not contain all of our subsidiaries, some of which are immaterial entities. Our only significant subsidiaries are Guaranty Holdings Inc. I and Guaranty Bank. All subsidiaries shown are 100% owned by their immediate parent.

Our Strategy

Our primary operating philosophy is to maximize long-term stockholder value by growing sustainable client relationships and delivering our products with extraordinary service. We have a commitment to:

•  create outstanding long-term value for our stockholders,

•  improve the financial success of the people and businesses in the markets we serve,

•  make a significantly positive impact in the communities where our customers reside and work, and

•  attract, develop, and retain superior employees.

Our core values, listed below, describe our corporate culture and how we operate our business:

•  We conduct our business with the highest degree of integrity, honesty, and efficiency,

•  We manage our customers’ assets with care,

•  We show mutual respect to our clients, our neighbors, and our fellow employees,

•  We are passionate about our business, we play to win, and we have fun,

•  We are empowered to make decisions that provide creative solutions for our customers, and

•  We are entrepreneurial in our actions.

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Our specific business strategies are to:

•  Grow our commercial lending franchise.  Our commercial lending group has emphasized targeting certain industries and product types in which we have expertise. We will continue to serve niche industries in select markets across the country with experienced personnel who can add value to our customer relationships.

•  Grow our retail franchise in Texas and California.  We will continue to invest in relocating existing bank branches and in opening new branches in the high growth areas of our existing markets. We will also build upon our consumer and small business lending capabilities. We believe these activities along with strategic mergers and acquisitions will enable us to grow our business in each of the markets we will serve.

•  Increase fee income.  We will continue to emphasize our deposit services, annuities and mutual funds, insurance products, and other products and services that can be provided to our clients to deepen the relationship.

•  Provide distinctive customer service.  We must retain and attract individuals who understand the financial needs of our customers and are experienced and trained to provide customized solutions.

•  Improve operating efficiency.  We must continually review our business practices to assure we are operating as efficiently as possible.

•  Maintain strong credit and risk standards.  We will maintain the strong and effective approach to risk management that has been a foundation of our operating culture.

We believe our corporate culture and business strategies allow us to distinguish ourselves from other financial institutions operating in Texas and California and successfully attract and retain relationships with businesses and individual customers.

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Business Segments

We operate in four business segments.

Commercial banking

Commercial banking operates out of a primary production office in Dallas, with satellite production offices in Houston, Austin, San Antonio, Los Angeles, Sacramento, and San Diego. We offer banking services to business and commercial customers including financing for commercial real estate, multifamily and homebuilder construction, mortgage warehouse financing, senior housing, middle market businesses and companies engaged in the energy industry. We provide lines of credit, working capital loans, acquisition, expansion and development facilities, borrowing base loans, real estate construction loans, regional and national homebuilder loans, term loans, equipment financing, letters of credit, and other loan products. The commercial loans we provide are diversified by product, industry, and geography. We lend to nationally known corporations, regional companies, oil and gas producers, top tier real estate developers, mortgage lenders, manufacturing and industrial companies, and other businesses. We have processes in place to analyze and evaluate on a regular basis our exposure to industries, products, market changes, and economic trends. The chart below indicates the primary and other markets where our commercial banking group focuses its efforts.

In each of these markets, we monitor pertinent factors such as industry, sector, geographic, and market conditions for concentrations of credit risk. In particular, for these states shown that exceed five percent of total loans, we benefit from diversification by loan purpose, product type, location, and sector.

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We focus on specific industries and specialties in which we have expertise and lend on a national basis. The chart below shows the composition of our lending portfolio at year-end 2007.

Our residential housing portfolio exceeds $5 billion and includes adjustable rate single-family mortgages and loans to finance single-family, multifamily and senior housing construction and loans to finance mortgage warehouse activities. Our commercial real estate portfolio is approximately $2 billion and includes financing for the construction of office, retail, and industrial properties.

The commercial business and energy lending portfolios exceed $2 billion. Commercial and business loans are typically secured by various business and commercial assets principally in Texas and California, but also throughout the United States. Energy loans are typically secured by reserve-based oil and gas collateral, primarily located in Texas, Oklahoma, California, and Louisiana.

Our commercial customers are also able to use our corporate investment services, commercial deposit accounts, and treasury management services, including remote deposit capabilities.

Guaranty Bank maintains formal loan policies, and a committee of the Bank’s board of directors oversees loan approval authorities and credit underwriting standards. Our lending activities are subject to lending limits imposed by federal law. Differing limits apply based on the type of loan and the nature of the borrower, including our overall relationship with the borrower. In general, the maximum amount we may loan to any one borrower is 15% of Guaranty Bank’s unimpaired capital and surplus.

The principal economic risk associated with lending is the creditworthiness of the borrower. General economic factors affecting a borrower’s ability to repay include interest rates, inflation, collateral valuations, and unemployment rates, as well as other factors affecting a borrower’s assets, clients, suppliers, and employees. Many of our commercial loans are made to medium-sized businesses, that are sometimes less able to withstand competitive, economic, and financial pressures than larger borrowers. In periods of economic weakness, these businesses may be more adversely affected than larger enterprises, which may cause increased levels of non-accrual or other problem loans and higher provision for loan losses. To mitigate this risk we have adopted policies, procedures, and standards that help identify problem areas and allow corrective action to be taken on a timely basis.

Our primary commercial banking competitors are the very large national banking organizations such as Wells Fargo, Bank of America, Comerica, JPMorgan Chase, and Wachovia.

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Retail banking

We offer a broad range of retail banking services to consumers and small businesses including deposits, loans, and non-deposit investment products. We also offer an array of convenience-centered services, including telephone and Internet banking, debit cards, and direct deposit. We are associated with a nationwide network of automated teller machines of other financial institutions that enables our customers to use ATM facilities throughout the United States and around the globe.

We offer a variety of deposit accounts to our consumers and businesses, including savings, checking, interest-bearing checking, money-market, and certificates of deposit. The primary sources of deposits are residents and businesses located in our Texas and California markets. We have over 100 branches in Texas concentrated in the Austin, Dallas/Fort Worth, Houston, and San Antonio metropolitan areas. We have over 50 branches in California concentrated in the Inland Empire and Central Valley regions of that state. Our California office locations are proximally located in and around the cities of San Diego, Palm Springs, Riverside, Sacramento, Stockton, and Bakersfield. These markets have very attractive consumer and business demographics including eight of the top 25 population growth markets in the country. The chart below provides a breakdown of deposits by state at year-end 2007 and the maps below indicate the areas of Texas and California where we have retail operations.

State	Total Deposits
	(In billions)
Texas	$	6.4
California		2.4
	$	8.8

To attract deposits, we employ a marketing plan in our service areas that features a broad product line and competitive rates and services. Our marketing plan includes advertising programs as well as personal solicitation by our employees, officers and directors. Over 45% of our deposit balances are either checking or money market accounts. Additionally, a large portion of our certificates of deposit accounts represent significant long-term customer relationships. We do not generally raise deposits through brokers.

We loan to individuals for personal, family, and household purposes, including secured and unsecured installment and term loans, home equity loans and home equity lines of credit.

We provide, through a non-affiliated registered broker-dealer and through licensed agents, non-deposit investment products such as mutual funds and variable annuity products for which we receive a commission.

Our primary retail banking competitors include the large national banking organizations that operate in Texas and California as well as the smaller local community banks, savings and loans and credit unions.

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Insurance agency

Through our 17 branch offices in Texas and California, we offer property and casualty insurance and life insurance. In providing these products, we act as an agent for the third-party insurance companies and their underwriters. We do not underwrite these risks, nor do we provide the insurance coverage. We work with over 400 insurance companies. Our compensation is in the form of a commission paid by the insurance companies. Our agency also sells fixed annuity products through our retail bank branches. The markets served by the insurance agency generally follow the geographic footprint of our retail banking operations. The maps below show our existing insurance agency offices.

Treasury, corporate and other

This segment includes activities we perform to manage our liquidity needs and provide attractive risk adjusted returns. We borrow from the Federal Home Loan Bank of Dallas and other third parties and invest in what we believe to be low risk variable rate mortgage-backed securities. This segment also includes expenses we do not allocate to other segments.

Customers and Relationships

We believe that the large economies in Texas and California provide a significant opportunity to build a successful, locally-oriented banking franchise. Currently we serve approximately 275,000 retail customers. These customers rely on us for deposit, lending, and non-deposit investment products. These relationships are the foundation upon which we continue to build a strong consumer client base. Our recent addition of a consumer lending platform is expected to provide customer acquisition opportunities and to increase our product cross-marketing.

We provide commercial banking services to approximately 500 medium to large corporate and business customers. These business customers, including real estate developers, homebuilders and oil and gas producers, have been developed through our relationship officers who have knowledge and expertise in these market segments.

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We have approximately 36,000 insurance agency customers, and we actively cross-sell our products and services to commercial customers of the bank and our insurance agency.

Markets and Trends

We believe that Texas and California are two of the best states for offering banking and insurance services. Population growth in both states is creating a growing demand for financial services. The U.S. Census Bureau projects that Texas and California will account for about 30% of the total U.S. population growth between now and 2030. We currently have over 100 bank branches and eight insurance offices in Texas and over 50 bank branches and nine insurance offices in California.

Our Texas locations are concentrated in the Austin, Dallas/Fort Worth, Houston, and San Antonio metropolitan areas. We also have an integrated network of bank branches within the central and eastern regions of the state.

Our California locations are concentrated in the Inland Empire and Central Valley regions of that state. California office locations are located in and around the cities of San Diego, Palm Springs, Riverside, Sacramento, Stockton, and Bakersfield.

We are committed to expanding our operations in the markets we currently serve by providing convenient access for our customers and attracting new customers in these growing regions. However, our increased distribution strategy will not be limited to opening new offices, but will include acquiring branches as well as acquiring banks and insurance agencies in the markets we serve, provided such acquisitions meet our financial and strategic requirements.

Guaranty Bank’s commercial lending is geographically dispersed throughout the United States, with a concentration in Texas, California, Florida, Arizona, and Georgia. We perform significant research and analysis to understand the current and future prospects for each market. Additionally, we monitor business conditions to provide additional data regarding the economic condition of the area.

Competition

Based on deposit market share, we are one of the ten largest financial institutions in Texas and have a significant presence in the Central Valley and Inland Empire regions of California. We face significant competition in all of the products we offer and geographic markets we serve. Our competitors include commercial banks, savings and loan associations, mutual savings banks, credit unions, consumer finance companies, credit card companies, captive and independent insurance agencies, as well as other investment firms and advisors. Many of our competitors are larger, well established and have greater financial resources.

Supervision and Regulation

We are subject to the extensive regulatory framework applicable to savings and loan holding companies as well as federal savings associations and insurance agencies. This regulatory framework is primarily intended for the protection of depositors, the federal deposit insurance fund and the banking system as a whole rather than for the protection of stockholders and creditors.

As a savings and loan holding company, we are subject to regulation by the Office of Thrift Supervision, or OTS. Guaranty Bank is subject to regulation and examination by the OTS (its primary federal regulator) as well as the Federal Deposit Insurance Corporation, or FDIC. Guaranty Insurance Services, Inc. is also subject to various federal and state laws and regulations. We also engage in real estate brokerage services and are subject to licensing and oversight of state regulators with jurisdiction over these activities.

We are a legal entity separate and distinct from our banking and nonbanking subsidiaries. Our principal sources of funds are cash dividends paid by our subsidiaries, investment income, and borrowings. Guaranty Bank has a policy to remain “well-capitalized.” Federal laws limit the amount of dividends or other capital distributions that a banking institution can pay. In some cases, Guaranty Bank must file an application or notice with the OTS at least 30 days before it can pay dividends to us.

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We are not currently subject to any explicit regulatory capital requirements, but Guaranty Bank is subject to OTS capital requirements. Federal statutes and OTS regulations have established four ratios for measuring an institution’s capital adequacy: a “leverage” ratio — the ratio of an institution’s Tier 1 capital to adjusted tangible assets; a “Tier 1 risk-based capital” ratio — an institution’s adjusted Tier 1 capital as a percentage of total risk-weighted assets; a “total risk-based capital” ratio — the percentage of total risk-based capital to total risk-weighted assets; and a “tangible equity” ratio — the ratio of tangible capital to total tangible assets.

Federal statutes and OTS regulations have also established five capital categories for federal savings banks: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution is treated as well-capitalized when its risk-based capital ratio is at least 10.00%, its Tier 1 risk-based capital ratio is at least 6.00%, its leverage ratio is at least 5.00%, and it is not subject to any federal supervisory order or directive to meet a specific capital level. As of December 31, 2007, Guaranty Bank met all capital requirements to which it was subject and satisfied the requirements to be treated as a well-capitalized institution.

We actively follow the progress of the U.S. banking agencies in their efforts to develop a new set of regulatory risk-based capital requirements. The new requirements are commonly referred to as Basel II or the New Basel Capital Accord. We are evaluating these proposed standards to understand how they may affect our capital requirements. We are also reviewing the appropriateness of our internal measurements of credit risk, market risk, and operational risk. We are assessing the potential effects the New Basel Capital Accord may have on our business practices as well as broader competitive effects within the industry.

We are a grandfathered “unitary savings and loan holding company,” as defined by federal law, and may not acquire control of another savings association without OTS approval. The Gramm-Leach Bliley Act, or GLBA, generally restricts any non-financial entity from acquiring us, unless such non-financial entity was, or had submitted an application to become, a savings and loan holding company as of May 4, 1999. Because we were a savings and loan holding company prior to May 4, 1999, we may engage in activities not otherwise permissible for a savings and loan holding company and may acquire non-financial subsidiaries. We may not be acquired by a savings and loan holding company, bank holding company, financial holding company, or by any individual without the approval of our governing regulatory agency. In any case, the public must have an opportunity to comment on any proposed acquisition, and that agency must complete an application review. Without prior approval from the OTS, we may not acquire more than five percent of the voting stock of any savings institution.

The FDIC insures the deposits of Guaranty Bank to the applicable maximum in each account, and such insurance is backed by the full faith and credit of the United States government. Prior to March 31, 2006, the FDIC administered two separate deposit insurance funds, the Bank Insurance Fund, or the BIF and the Savings Association Insurance Fund, or the SAIF. In accordance with federal deposit insurance reform legislation enacted in February 2006, the FDIC merged the BIF and the SAIF into a newly created Deposit Insurance Fund, or the DIF, effective March 31, 2006. Effective January 1, 2007, the FDIC modified its system for setting deposit insurance assessments. In addition to the capital and supervisory factors of the former system, assessment rates under the new system will be determined by an institution’s examination rating and either its long-term debt ratings or certain financial ratios.

The federal deposit insurance reform legislation also increases the amount of deposit insurance coverage for retirement accounts, allows for deposit insurance coverage on individual accounts to be indexed for inflation starting in 2010, and provides the FDIC more flexibility in setting and imposing deposit insurance assessments.

Numerous regulations promulgated by the Board of Governors of the Federal Reserve System, or Federal Reserve Board, affect the business operations of Guaranty Bank. These include regulations relating to equal credit opportunity, electronic fund transfers, collection of checks, truth in lending, truth in savings, home ownership and equity protection, and availability of funds. Under Federal Reserve Board regulations, Guaranty Bank is required to maintain a reserve against its transaction accounts (primarily interest-bearing and noninterest-bearing checking accounts). Because reserves must generally be maintained in cash or in

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noninterest-bearing accounts, the effect of the reserve requirements is to increase Guaranty Bank’s cost of funds.

The GLBA includes provisions that give consumers protections regarding the transfer and use of their nonpublic personal information by financial institutions. In addition, states are permitted under the GLBA to have their own privacy laws, which may offer greater protection to consumers than the GLBA. Numerous states in which we do business have enacted such laws.

The Bank Secrecy Act and the USA PATRIOT Act include numerous provisions designed to fight international money laundering and to block terrorist access to the U.S. financial system. We have established policies and procedures to ensure compliance with the provisions of the Bank Secrecy Act and the USA PATRIOT Act.

The Community Reinvestment Act, or CRA, requires that Guaranty Bank help meet the credit needs of the communities it serves, including low-to-moderate-income neighborhoods, while maintaining safe and sound banking practices. The primary federal regulatory agency assigns one of four possible ratings to an institution’s CRA performance and is required to make public an institution’s rating and written evaluation. The four possible ratings of meeting community credit needs are outstanding, satisfactory, needs to improve, and substantial non-compliance. In the most recent examination, we received an “outstanding” CRA rating from the OTS.

The non-affiliated registered broker-dealer that sells investment products through our branches maintains its own compliance monitoring program. In addition, we have developed our own compliance-monitoring program to ensure our employees deliver products in a manner consistent with the various laws governing these activities.

Although our lending activities expose us to some risk of liability for environmental hazards, we do not currently have any significant liabilities for environmental matters.

Employees

We have about 2,500 employees of which about 2,300 are full time. None of our employees are covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Item 1A.   Risk Factors

You should carefully consider each of the following risk factors and all of the other information set forth in this annual report. We have separated the risk factors into two groups: (1) risks relating to our business, and (2) risks relating to ownership of our common stock. Based on the information currently known to us, we believe the following information identifies the most significant risk factors relating to our company. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

If any of the following risks and uncertainties develop into actual events, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock would likely decline.

Risks Relating to Our Business

Changes in interest rates affect our business and profitability.

Changes in interest rates are not predictable or controllable. The majority of our assets and liabilities are monetary in nature and are affected by changes in interest rates. Like most financial institutions, changes in interest rates affect our net interest income as well as the value of our assets and liabilities. A significant change in the general level of interest rates may adversely affect our net interest margin because our interest-bearing assets and liabilities do not necessarily reprice at the same time or in the same amounts. In addition, periodic and lifetime caps may limit interest rate changes on our mortgage-backed securities and loans that pay interest at adjustable rates.

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Additionally, changes in interest rates affect the demand for our loan, deposit, and other financial products. An increase in interest rates may reduce the demand for loans and our ability to originate loans. A decrease in the general level of interest rates may affect us through increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Accordingly, changes in interest rates will likely affect our net interest income and our overall results.

Declining real estate values, particularly in California, may cause borrowers to default on loans and leave us unable to fully recover our loans.

A large portion of our loans are secured by real estate. Real estate values and real estate markets are generally affected by fluctuations in interest rates, the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies, acts of nature, and changes in national, regional and local economic conditions. When real estate prices decline, the value of real estate collateral securing our loans is reduced. Values of certain types of real estate, particularly undeveloped land, single-family residential lots, and new home construction have declined recently in certain parts of the country. As a result, we increased our allowance for loan losses. We may be forced to further increase our allowances for loan losses and suffer additional loan losses if real estate values decline further, or we are not able to recover on defaulted loans by foreclosing and selling the real estate collateral, or by completing development or construction.

Approximately one-half of our single-family residential loans are secured by real estate in California. We would be adversely affected by a significant reduction in the value of real estate in California that serves as collateral for our loans. We may be forced to increase our allowance for loan losses and may suffer additional loan losses as a result of any such reduction in collateral values. The adverse impact from a reduction in real estate values in California may be greater for us than that suffered by other financial institutions with a more geographically diverse loan portfolio.

Additionally, we have a significant investment in private issuer mortgage-backed securities. Deterioration in the value of single-family homes may cause borrowers to default on the mortgages underlying these securities. In the cash flow distribution from the underlying assets, our securities are senior to subordinate tranches. However, losses from the underlying loans could eliminate the subordinate tranches. In that case, our securities would begin to become impaired. If we were to conclude we would not fully recover all contractual amounts due on the securities, we would record charges to reduce the carrying amount of the securities, which would reduce our earnings and our regulatory capital.

If our allowance for loan losses is not sufficient to cover actual loan losses, our profitability could decrease.

Our loan customers may fail to repay their loans according to the terms, and the collateral securing the payment of these loans may be insufficient to assure repayment. Such loan losses could have a material adverse effect on our operating results. We make various assumptions, estimates, and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we rely on a number of factors, including our own experience and our evaluation of current economic conditions. If our assumptions prove to be incorrect, our current allowance for loan losses may not be sufficient to cover incurred losses in our loan portfolio, and adjustments may be necessary that would have a material adverse effect on our operating results.

Our loan portfolio lacks diversity, which exposes us to a greater risk of loss from isolated events and individual market adjustments.

Commercial real estate, homebuilder construction, multifamily, commercial and business, and energy loans, which represent two-thirds of our loan portfolio, generally expose a lender to greater risk of loss than single-family mortgage loans because such loans involve larger loan balances to single borrowers or multiple borrowers in specific industries. The repayment of commercial and business loans often depends on the successful operations and income streams of the borrowers and for commercial real estate loans, repayment is also dependent on the completion and successful lease up, sale or refinancing of the property. Although the

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majority of our energy loans are collateralized by oil and gas reserves, significant changes in energy prices or unsuccessful hedge programs by our borrowers could affect collateral values. Many of our commercial real estate or multifamily borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan, credit relationship, or geographic market can expose us to a significantly greater risk of loss compared to an adverse development with respect to one single-family mortgage loan.

We have not acquired a significant amount of mortgage loans from our correspondent mortgage warehouse borrowers since we commenced this activity in 2007, and have experienced decreases in our mortgage-backed securities investments; if this continues, our earning assets and interest income could decrease.

We have developed the capability to acquire mortgage loans from correspondent mortgage warehouse borrowers. The correspondent mortgage business is very competitive, and the current market environment is not generally conducive to significant production of non-agency adjustable-rate mortgages, which we generally hold. Our single-family loan portfolio will decline in size if market conditions continue to inhibit our ability to acquire loans from our correspondent lending activities. Additionally, if we choose not to acquire additional mortgage-backed securities, our investment portfolio will decrease. The resulting decreases in total loans or securities would result in lower net interest income.

Current market conditions may limit our ability to raise regulatory capital.

We may desire to raise funds by issuing financial instruments, such as additional subordinated notes payable to trust, as a source for our regulatory capital at Guaranty Bank. We may also desire to seek capital infusions in the form of debt or equity investments, as market and economic conditions may require. Current market conditions are unfavorable for the issuance of such instruments. We may be unable to raise additional funds, may find the costs associated with such issuances are too high, or may find the dilutive effect of such capital infusions may be significant to current holders of our securities. This could limit our ability to grow earning assets, or make growth less profitable.

Recent volatility in the credit markets could limit our ability to grow our earning assets and could increase our credit losses.

Credit markets have recently experienced difficult conditions and volatility, including the well-publicized concerns in the sub-prime mortgage market as well as related financings. Market uncertainty increased dramatically and expanded into other markets, including leveraged finance, and other segments of mortgage finance. These conditions resulted in less liquidity, greater volatility, widening of credit spreads and a lack of price transparency. While it is difficult to predict how long these conditions will exist and which markets, products or other segments of our loan and securities portfolio will ultimately be affected, these factors could adversely affect our ability to grow our earning assets and could increase our credit losses.

As a savings bank pursuant to the Home Owners’ Loan Act, or HOLA, Guaranty Bank is required to maintain a certain percentage of its total assets in HOLA-qualifying loans and investments, which limits our asset mix and could limit our ability to increase the yield on our earning assets.

A savings bank or thrift differs from a commercial bank in that it is required to maintain 65% of its total assets in HOLA-qualifying loans and investments, such as loans for the purchase, refinance, construction, improvement, or repair of residential real estate. To maintain our thrift charter we have to pass the Qualified Thrift Lender test, or QTL test. The QTL test limits the extent to which we can grow our commercial loan portfolio. Accordingly, we may be limited in our ability to change our asset mix and increase the yield on our earning assets by growing our commercial loan portfolio.

In addition, if we continue to grow our commercial loan portfolio and our single-family loan portfolio declines, it is possible that in order to maintain our QTL status, we could be forced to buy mortgage-backed securities or other qualifying assets at times when the terms might not be attractive. Alternatively, we could find it necessary to pursue different structures, including changing Guaranty Bank’s thrift charter to a commercial bank charter.

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Our business strategy of shifting our asset mix to reduce the residential mortgage loan portfolio and increase commercial and consumer loans exposes us to greater credit risk.

Our asset mix has shifted, resulting in reductions in our residential mortgage loan portfolio and increases in our commercial portfolio. Additionally, we have plans to increase our consumer loan portfolio. Commercial and consumer lending typically results in higher yields than traditional residential mortgage lending. However, it also typically entails more credit risk. Generally speaking, the losses on commercial and consumer portfolios are more volatile and less predictable than residential mortgage lending, and consequently, the credit risk associated with such portfolios is higher.

The business segments in which we operate are highly competitive and competitive conditions may negatively affect our ability to maintain or increase our market share and profitability.

Our operations are in highly competitive markets and a number of entities with which we compete are substantially larger and have greater resources. We compete with commercial banks, savings and loan associations, credit unions, mortgage banks, other lenders, and insurance agencies, many of which are larger and have greater resources. Any improvement in the cost structure or service of our competitors will increase the competition we face. Many competitors offer similar products and use similar distribution channels. The substantial expansion of banks’ and insurance companies’ distribution capacities and product features in recent years has intensified pressure on margins and production levels and has increased the level of competition in many of our business lines.

We operate in a highly regulated environment and may be adversely affected by changes in federal and local laws and regulations.

We are subject to regulation, supervision, and examination by federal banking and state insurance authorities. The regulations enforced by these authorities are intended to protect customers and federal deposit insurance funds, not creditors, stockholders, or other security holders. Regulations affecting banks and financial services companies are continuously changing, and any change in applicable regulations or federal or state legislation could have a negative effect on our operations. Further, regulators have significant discretion and power to prevent or remedy unsafe or unsound practices or violations of laws by federal savings banks and their holding companies (including the power to appoint a conservator or receiver for such banks) or to require changes in various aspects of their operations at any time, including restrictions on the payment of dividends to the parent company. Any exercise of such regulatory discretion could have a negative effect on our financial condition or the results of our operations.

We may not be able to pay dividends if we are not able to receive dividends from Guaranty Bank.

Cash dividends from Guaranty Bank would be the principal source of funds for paying cash dividends on our common stock. Unless we receive dividends from Guaranty Bank, we may not be able to pay dividends. Guaranty Bank’s ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements. Additionally, we may choose for Guaranty Bank to retain its earnings in order to meet regulatory capital requirements.

Our information systems may experience an interruption or breach in security that could expose us to liability or loss.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in customer relationship management, general ledger, deposit, loan, insurance, and other systems. While we have policies and procedures designed to prevent or limit the effect of any such failure, interruption or security breach, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

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We may be unable to achieve some or all of the benefits that we expect to achieve from being a stand-alone public company.

We may not be able to achieve the full strategic and financial benefits that we expect as a stand-alone public company, or such benefits may be delayed or may not occur at all. There can be no assurance that analysts and investors will regard our corporate structure or business model as appropriate or competitive. Additionally, we will incur costs in excess of the amounts allocated to us by Temple-Inland, such as information technology costs, director and officer liability insurance costs, director fees, and corporate administrative costs.

We have very little operating history as an independent, publicly-traded company upon which you can evaluate our performance and, accordingly, our prospects must be considered in light of the risks that any newly independent company encounters.

We have very limited experience operating as an independent, publicly-traded company and performing various public company administrative functions, including human resources, tax administration, registrant filing responsibilities (including compliance with the Sarbanes-Oxley Act of 2002 and with the periodic reporting obligations of the Securities Exchange Act of 1934), investor relations, information technology and telecommunications services, as well as the accounting for some items such as equity compensation and income taxes. We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent, publicly-traded company, and we may experience increased costs as an independent publicly traded company. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of independent business operations, particularly companies such as ours in highly competitive markets.

Our agreements with Temple-Inland and Forestar may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties.

The agreements that we have entered into related to our spin-off from Temple-Inland, including the separation and distribution agreement, employee matters agreement, tax matters agreement and transition services agreement, were prepared in the context of our spin-off from Temple-Inland while we were still part of Temple-Inland and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. In many cases, these agreements extend into future periods, and relate to, among other things, future services provided by us to Temple-Inland and purchased by us from Temple-Inland, contractual rights, indemnifications and other obligations between Temple-Inland, Forestar and us.

Our historical financial information is not necessarily indicative of our results as a separate company and, therefore, may not be reliable as an indicator of our future financial results.

Our historical financial information has been created using our historical results of operations and historical bases of assets and liabilities as part of Temple-Inland. This historical financial information is not necessarily indicative of what our results of operations, financial position and cash flows would have been if we had been a separate, stand-alone entity during the periods presented.

It is also not necessarily indicative of what our results of operations, financial position and cash flows will be in the future. Our historical financial information does not reflect changes that may occur in our cost structure, financing and operations as a result of the spin-off. These changes might include increased costs associated with reduced economies of scale and purchasing power.

If the spin-off is determined to be taxable for U.S. federal income tax purposes, we and our stockholders could incur significant U.S. federal income tax liabilities.

Temple-Inland received a private letter ruling from the IRS that the spin-off, if completed as described in the ruling request, qualified for tax-free treatment under applicable sections of the IRS Code. In addition, Temple-Inland received an opinion from tax counsel that the spin-off so qualified. The IRS ruling and the opinion rely on certain representations, assumptions, and undertakings, including those relating to the past and future conduct of our business, and neither the IRS ruling nor the opinion would be valid if such representations, assumptions, and undertakings were incorrect. Moreover, the IRS private letter ruling does not

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address all the issues that are relevant to determining whether the spin-off qualifies for tax-free treatment. Notwithstanding the IRS private letter ruling and opinion, the IRS could determine that the spin-off should be treated as a taxable transaction if it determines that any of the representations, assumptions, or undertakings that were included in the request for the private letter ruling are false or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the IRS ruling.

If the spin-off failed to qualify for tax-free treatment, Temple-Inland would be subject to tax as if it had sold our common stock in a taxable sale for its fair market value at the date of the spin-off, and our initial public stockholders would be subject to tax as if they had received a taxable distribution equal to the fair market value of our common stock that was distributed to them. Under the tax matters agreement between Temple-Inland and us, we would generally be required to indemnify Temple-Inland against any tax resulting from the distribution to the extent that such tax resulted from (1) an issuance of our equity securities, a redemption of our equity securities, or our involvement in other acquisitions of our equity securities, (2) other actions or failures to act by us, or (3) any of our representations or undertakings being incorrect or violating provisions of the tax matters agreement. Our indemnification obligations to Temple-Inland and its subsidiaries, officers, and directors are not limited by any maximum amount. If we are required to indemnify Temple-Inland or such other persons under the circumstances set forth in the tax matters agreement, we may be subject to substantial liabilities.

We must abide by certain restrictions to preserve the tax-free treatment of the spin-off and may not be able to engage in desirable acquisitions and other strategic transactions following the spin-off.

To preserve the tax-free treatment of the spin-off to Temple-Inland, under the tax matters agreement, for the two-year period following the distribution, we are prohibited, except in specified circumstances, from:

•  issuing equity securities for cash,

•  acquiring businesses or assets with equity securities, or

•  engaging in mergers or asset transfers that could jeopardize the tax-free status of the distribution.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business.

The ownership by our chairman, our executive officers and some of our other directors of common stock, options or other equity awards of Temple-Inland or Forestar may create, or may create the appearance of, conflicts of interest.

Because of their former positions with Temple-Inland, our chairman, substantially all of our executive officers, including our Chief Executive Officer and our Chief Financial Officer, and some of our non-employee directors, own shares of common stock of Temple-Inland, options to purchase shares of common stock of Temple-Inland or other Temple-Inland equity awards. Additionally, as a result of Temple-Inland’s distribution of shares of Forestar Real Estate Group, or Forestar, these officers and non-employee directors also own shares of common stock, options to purchase shares of common stock and other equity awards in Forestar. The individual holdings of shares of common stock, options to purchase shares of common stock or other equity awards of Temple-Inland and Forestar may be significant for some of these persons compared to their total assets. In light of our continuing relationships with Temple-Inland and Forestar, these equity interests may create, or appear to create, conflicts of interest when these directors and officers are faced with decisions that could benefit or affect the equity holders of Temple-Inland or Forestar in ways that do not benefit or affect us in the same manner.

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Risks Relating to Our Common Stock

Our common stock has limited trading history. The market price of our shares may fluctuate widely as a result of our short history as a stand-alone company.

The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control, including:

•  a shift in our investor base because previous investors in Temple-Inland may not desire to continue their investments in a financial services related company;

•  actual or anticipated fluctuations in our operating results, particularly in light of recent market conditions for real estate and mortgage-backed securities;

•  announcements by us or our competitors of significant acquisitions or dispositions;

•  the failure of securities analysts to cover our common stock after the distribution;

•  the operating and stock price performance of other comparable companies;

•  overall market fluctuations; and

•  general economic conditions.

Stock markets in general have experienced volatility that has often been unrelated to the operating or financial performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

Substantial sales of our common stock may occur for several months following the spin-off, which could cause our stock price to decline.

The shares of our common stock that Temple-Inland distributed to its stockholders generally may be sold at any time in the public market. Although we have no actual knowledge of any plan or intention on the part of any stockholder to sell our common stock, it is possible some of our stockholders, including possibly some of our largest stockholders, may sell our common stock received in the distribution for various reasons, including that our business profile or market capitalization as an independent, publicly-traded company does not fit their investment objectives. Moreover, index funds tied to the Standard & Poor’s 500 Index, the Russell 1000 Index and other indices that held shares of Temple-Inland common stock will likely be required to sell the shares of our common stock they receive in the distribution. Also, some employees of Temple-Inland and Forestar may be unwilling to hold our common stock received in the distribution in their 401(k) plan accounts. The sales of significant amounts of our common stock may result in the lowering of the market price of our common stock.

Your percentage ownership in our common stock may be diluted in the future because of existing equity awards on our common stock, and future capital raising activities.

Your percentage ownership in our common stock may be diluted in the future because of equity awards on our common stock to our directors and officers and directors and officers of Temple-Inland and Forestar as a result of conversion of Temple-Inland awards outstanding at the date of the spin-off. Additionally, we have an approved Stock Incentive Plan, which provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights, phantom equity awards and other equity-based awards to our directors, officers and other employees. In the future, we may issue additional equity securities, subject to limitations imposed by the tax matters agreement, in order to fund working capital needs, regulatory capital requirements, capital expenditures and product development, or to make acquisitions and other investments, which may dilute your ownership interest.

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The terms of our spin-off from Temple-Inland, anti-takeover provisions of our charter and bylaws, as well as Delaware law and our stockholder rights agreement, may reduce the likelihood of any potential change of control or unsolicited acquisition proposal that you might consider favorable.

The terms of our spin-off from Temple-Inland could delay or prevent a change of control that you may favor. An acquisition or issuance of our common stock could trigger the application of Section 355(e) of the Code. Under the tax matters agreement we have entered into with Temple-Inland and Forestar, we would be required to indemnify Temple-Inland and Forestar for the resulting tax in connection with such an acquisition or issuance and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.

In addition, our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. Our board of directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, conversion or other rights, voting powers, and other terms of the classified or reclassified shares. Our board of directors could establish a series of preferred stock that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our common stock or otherwise be considered favorably by our stockholders. Our certificate of incorporation and bylaws also provide for a classified board structure.

Our bylaws provide that nominations of persons for election to our board of directors and the proposal of business to be considered at a stockholders meeting may be made only in the notice of the meeting, by our board of directors or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures of our bylaws. Also, under Delaware law, business combinations, including issuances of equity securities, between us and any person who beneficially owns 15% or more of our common stock or an affiliate of such person, are prohibited for a three-year period unless exempted by the statute. After this three-year period, a combination of this type must be approved by a super-majority stockholder vote, unless specific conditions are met or the business combination is exempted by our board of directors.

In addition, we have entered into a stockholder rights agreement with a rights agent that provides that in the event of an acquisition of or tender offer for 20% or more of our outstanding common stock, our stockholders will be granted rights to purchase our common stock at a significant discount. The stockholder rights agreement could have the effect of significantly diluting the percentage interest of a potential acquirer and make it more difficult to acquire a controlling interest in our common stock without the approval of our board of directors to redeem the rights or amend the stockholder rights agreement to permit the acquisition.

Additional Risks

Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, financial condition or results of operations, the spin-off, or the trading price of our common stock.

The risks and uncertainties we face are not limited to those set forth in the risk factors described above. Although we believe that the risks identified above are our material risks in each of these categories, our assessment is based on the information currently known to us. Additional risks and uncertainties that are not presently known to us or that we do not currently believe to be material, if they occur, also may materially adversely affect our business, financial condition or results of operations, or the trading price of our common stock.

Item 1B.   Unresolved Staff Comments

None.

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Item 2.   Properties

We own a 435,000 square foot office building in Austin, Texas and we lease 150,000 square feet in an office building in Dallas, Texas. We lease about 195,000 square feet of the Austin office building to Temple-Inland and about 23,000 square feet to Forestar pursuant to a lease that expires in 2013.

We own the land and premises for 107 of our banking center branches; lease the land and own the premises for one of our banking center branches and lease the remaining 51 banking center branches.

We believe that our properties are adequate for our present needs.

Item 3.   Legal Proceedings

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believe we have established adequate reserves for any probable losses. We do not believe the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations, or cash flow. It is possible, however, that charges related to these matters could be significant to results of operations or cash flow in any one accounting period.

In 2007, a class was certified in an action in California related to our former mortgage banking operations. The action alleged violations of the state’s laws related to the time a mortgage company must file a lien release following repayment of a mortgage loan. The court subsequently dismissed the case, though the plaintiff has appealed the dismissal. The matter is pending action by the appeals court. We have established reserves we believe are adequate for this matter, and we do not anticipate the outcome will have a material adverse effect on our financial position or long-term results of operations or cash flows.

As a result of our participation in the Visa USA (“Visa”) network — principally related to ATM and debit cards — we own 0.013% of Visa for which we have no carrying value. Visa has filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock. In preparation for the offering, the Visa bylaws were modified in fourth quarter 2007 to provide for indemnification of Visa by its members for any ultimate losses related to certain existing litigation, described further in Visa’s registration statement. At the offering date, Visa members will place their ownership interest in escrow for a period of three years, and it is expected that any indemnification obligations will be funded by the escrowed ownership interest. We are not a named defendant in any of Visa’s litigation matters, and have no access to any non-public information about the matters. We have accrued our estimate of the fair value of our indemnification obligation, which we believe is insignificant. One of the matters settled prior to year-end 2007 and Visa had announced its estimate of the probable loss for another. However, several of the litigation matters are only in the very early stages of discovery, and it is impossible to determine the probable loss on those matters at this time. Though we expect the ultimate value of our membership interest to exceed our indemnification obligations, further accruals may be necessary depending on how the litigation matters proceed.

Item 4.   Submission of Matters to a Vote of Security Holders

We did not submit any matter to a vote of our shareholders in fourth quarter 2007.

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Common Stock began regular way trading on the New York Stock Exchange on December 31, 2007 following the completion of our spin-off from Temple-Inland Inc. As such, the following table reflects only a

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single day of trading. We do not yet have a dividend record as an independent publicly-traded company. We discuss our Dividend Policy below.

	2007
	Price Range
	High		Low
December 31, 2007	$	16.58		14.38
For the Year	$	16.58		14.38

Shareholders

Our stock transfer records indicated that as of February 29, 2008, there were approximately 35,507,148 holders of record of our Common Stock.

Dividend Policy

We will consider returning value to stockholders in the form of dividends, but only if and to the extent declared by our board of directors and permitted by applicable law. Cash dividends from Guaranty Bank would be the principal source of funds for paying cash dividends on our common stock. Unless we receive dividends from Guaranty Bank, we may not be able to pay dividends. Guaranty Bank’s ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements. The declaration and payment of dividends will be at the sole discretion of our board of directors and will be evaluated from time to time in light of our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements (including compliance with the IRS private letter ruling), regulatory constraints that may limit the ability of Guaranty Bank to pay dividends to us, industry practice and other factors that our board of directors deems relevant. Guaranty Bank would not pay dividends to the extent payment of the dividend would result in it not being “well-capitalized” under capital adequacy standards of the Office of Thrift Supervision, or OTS. If we do declare a dividend, there can be no assurance that we will continue to pay dividends.

Other

See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for disclosure regarding securities authorized for issuance under equity compensation plans.

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Item 6.   Selected Financial Data

	2007			2006(a)(b)			2005(b)			2004(b)			2003
	(Dollars in millions, except per share data)
For the year:
Interest income	$	996		$	997		$	800		$	718		$	728
Interest expense		(605	)		(585	)		(404	)		(312	)		(346	)
Net interest income		391			412			396			406			382
(Provision) credit for credit losses		(50	)		(1	)		(10	)		12			(43	)
Noninterest income		157			168			180			267			370
Noninterest expense		(372	)		(388	)		(384	)		(534	)		(539	)
Income tax expense		(48	)		(70	)		(66	)		(56	)		(61	)
Net income	$	78		$	121		$	116		$	95		$	109
Dividends paid to Temple-Inland	$	35		$	135		$	25		$	100		$	166
Return on average assets		0.49	%		0.72	%		0.71	%		0.56	%		0.61	%
Return on average stockholders’ equity		7.52	%		11.67	%		11.97	%		10.00	%		11.37	%
Earnings per common share(c):
Income from continuing operations:
Basic and diluted	$	2.20			n/a			n/a			n/a			n/a
Diluted with share awards (proforma, unaudited)		2.16			n/a			n/a			n/a			n/a
Average shares outstanding:
Basic and diluted		35.4			n/a			n/a			n/a			n/a
Diluted with share awards (proforma, unaudited)		36.1			n/a			n/a			n/a			n/a
At year-end:
Loans, net	$	9,928		$	9,617		$	9,845		$	9,618		$	9,025
Assets		16,796			16,252			17,692			16,120			17,300
Deposits		9,375			9,486			9,201			8,964			8,698
Preferred stock issued by subsidiaries		—			305			305			305			305
Subordinated notes payable to trust		314			142			—			—			—
Long-term Federal Home Loan Bank borrowings (original maturities greater than one year at the time of borrowing)		794			1,304			1,924			2,662			3,169
Other long-term debt		11			101			101			105			106
Stockholders’ equity		1,138			1,015			1,017			927			938
Tangible equity		968			848			827			755			702
Tangible equity per common share		27.36			n/a			n/a			n/a			n/a
Tangible equity/tangible assets		5.82	%		5.27	%		4.73	%		4.73	%		4.11	%
Non-performing assets(d)		179			31			37			91			131
Capital (Guaranty Bank):
Tier 1 leverage ratio		7.74	%		7.62	%		6.94	%		6.89	%		6.31	%
Total risk-based capital ratio		10.54	%		10.52	%		10.54	%		10.83	%		11.13	%
Credit reserves(e):
Allowance for loan losses to non-performing loans		71	%		253	%		213	%		170	%		172	%
Allowance for loan losses to total loans		1.17	%		0.68	%		0.75	%		0.88	%		1.22	%

(a)	In 2006, we adopted the modified prospective application method of SFAS No. 123 (revised December 2004), Share-Based Payment.
(b)	In 2006, we sold our asset-based lending operations. In 2005, we eliminated our wholesale origination network. In 2004, we repositioned our mortgage origination activities and sold our third-party mortgage servicing rights. Charges related to these actions included in noninterest expense consist of:

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	For the Year
	2006		2005		2004
	(In millions)
Severance	$	5	$	2	$	9
Loss on closure of origination facilities		—		—		11
Loss on sale of mortgage servicing rights		—		—		11
Goodwill impairment		6		—		—
Other		—		3		3
	$	11	$	5	$	34

	The decrease in noninterest income and expense in 2005 is principally due to the 2004 repositioning of our mortgage origination activities and the sale of our third-party mortgage servicing rights.
(c)	In December 2007, Temple-Inland distributed our common stock to its stockholders in a ratio of one share of our common stock for every three shares of Temple-Inland common stock. Earnings per common share is computed as if the distribution had occurred at the beginning of 2007.
(d)	Includes nonaccrual loans, restructured loans not performing in accordance with their modified terms, and assets acquired through foreclosure. Excludes loans past due 90 days or more and still accruing.
(e)	Excludes residential mortgage loans held for sale.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect our current views with respect to future events and are subject to risk and uncertainties. A variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:

•  general economic, market, or business conditions;

•  demand for new housing;

•  competitive actions by other companies;

•  changes in laws or regulations and actions or restrictions of regulatory agencies;

•  deposit attrition, customer loss, or revenue loss in the ordinary course of business;

•  costs or difficulties related to transitioning as a stand-alone public company;

•  inability to realize elements of our strategic plans;

•  changes in the interest rate environment that expand or reduce margins or adversely affect critical estimates and projected returns on investments;

•  unfavorable changes in economic conditions affecting housing markets, credit markets, real estate values, or oil and gas prices, either nationally or regionally;

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•  natural disasters in primary market areas that may result in prolonged business disruption or materially impair the value of collateral securing loans;

•  assumptions and estimates underlying critical accounting policies, particularly allowance for credit losses, that may prove to be materially incorrect or may not be borne out by subsequent events;

•  current or future litigation, regulatory investigations, proceedings or inquiries;

•  strategies to manage interest rate risk, that may yield results other than those anticipated;

•  a significant change in the rate of inflation or deflation;

•  changes in the securities markets;

•  the ability to complete any merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of any merger, acquisition or divestiture; and the success of our business following any merger, acquisition or divestiture;

•  the final resolutions or outcomes with respect to our contingent and other corporate liabilities related to our business and any related actions for indemnification made pursuant to the various agreements with Temple-Inland and Forestar;

•  the ability to raise capital; and

•  changes in the value of real estate securing our loans.

Other factors, including the risk factors described in Item 1A, may also cause actual results to differ materially from those projected by our forward-looking statements. New factors emerge from time to time and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

Matters Affecting Comparability of Historical Financial Information

Management’s Discussion and Analysis of Financial Condition and Results of Operations covers periods prior to the spin-off. As a result, the discussion and analysis of historical periods does not reflect the impact of our becoming a separate public company, including potential changes in debt service requirements and differences between administrative costs allocated to us by Temple-Inland and those we will incur as a separate public company.

Our historical results may not be indicative of our future performance and do not necessarily reflect what our financial condition and results of operations would have been had we operated as an independent, stand-alone entity during the periods presented, particularly since changes occurred in our capitalization and will occur in our holding company operations as a result of the spin-off.

Summary

Overview

We gather deposits in two primary markets, Texas and California, both of which we believe offer substantial opportunity for cost-effective growth. We raise funds from deposits and borrowings and invest them in loans and mortgage-backed securities. We focus our lending activities on targeted geographic and industry markets. Our commercial lending is not limited to our deposit-gathering markets. Our loans have collateral characteristics that we have experience managing, such as single-family mortgage, commercial real estate construction, and energy. We attempt to minimize the potential effect of interest rate cycles by investing

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principally in adjustable rate assets and maintaining an asset and liability profile that is relatively unaffected by movements in interest rates.

Current Market Conditions

Current conditions in the credit markets are difficult and volatile resulting in less liquidity, widening of credit spreads, and a lack of price transparency for many assets. In addition, current conditions in residential housing markets are worsening because of an oversupply of housing including significant increases in foreclosed properties being marketed and decreasing demand partly because of difficulties for buyers in obtaining financing with the significant tightening of credit markets. Flat to declining values in many markets have made it difficult for borrowers to refinance when variable rate loan payments exceed their ability to service the loans. Additionally, homebuilders have found it difficult to sell new homes. These conditions have negatively affected our residential housing activities including single-family construction lending and single-family mortgage investing. As a result, the single-family mortgage and single-family construction portions of our residential housing loans have suffered declines in credit quality, and we recorded higher provisions for credit losses in 2007 than in the prior two years. We expect these conditions will continue throughout 2008. We continue to have sufficient liquidity resources, principally borrowing capacity at the Federal Home Loan Bank of Dallas, to meet our anticipated loan funding and operating requirements.

Analysis of Years 2007, 2006, and 2005

Performance Ratios

	For the Year
	2007			2006			2005
Return on assets (net income divided by average total assets)		0.49	%		0.72	%		0.71	%
Return on equity (net income divided by average stockholders’ equity)		7.52	%		11.67	%		11.97	%
Dividend payout ratio (dividends declared divided by net income)		45	%		112	%		22	%
Equity to assets ratio (average stockholders’ equity divided by average assets)		6.50	%		6.16	%		5.95	%
Net interest margin (net interest income divided by average earning assets)		2.59	%		2.58	%		2.58	%

Significant aspects of our results of operations follow:

2007

•  Net income decreased 36% to $78 million, principally because of a significant increase in provision for credit losses. Our loan portfolio credit quality, particularly single-family construction loans to homebuilders, declined as a result of deteriorating housing markets and, as a result, we recorded provisions for credit losses of $50 million.

•  Net interest income decreased 5% to $391 million as a result of a 6% decrease in average earning assets, principally because of repayments on our mortgage-backed security investments and single-family mortgage loans.

•  Noninterest income decreased principally as a result of our exit from asset-based lending operations in 2006.

2006

•  Net income increased 4% over 2005, as a result of minimal credit losses and a 4% increase in net interest income driven by an increase in average mortgage-backed security investments.

•  Noninterest income increased 5% in 2006 (excluding wholesale mortgage origination activities, from which we completed our exit in early 2006), because of increases in our retail deposit fees and insurance agency revenues.

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•  We recognized $11 million in asset impairments and severance as a result of our exit from asset-based lending operations and completing our exit from wholesale mortgage origination activities.

2005

•  While the overall credit quality of our loan portfolio remained strong, we incurred losses on asset-based loans and leases resulting in provisions for credit losses of $10 million.

•  We recognized $5 million in severance and other charges relating to our exit from the wholesale mortgage origination business.

Results of Operations

Net Interest Income

Net interest income is the interest we earn on loans, securities, and other interest-earning assets, minus the interest we pay for deposits and borrowings and dividends we paid on preferred stock issued by subsidiaries. Net interest income is sensitive to changes in the mix and amounts of interest-earning assets and interest-bearing liabilities. In addition, changes in the interest rates and yields associated with these assets and liabilities may significantly impact net interest income. See “Risk Management” for a discussion of how we manage our interest-earning assets and interest-bearing liabilities and associated risks.

Net interest margin, our net interest income divided by average earning assets, is principally influenced by the relative rates of our interest-earning assets and interest-bearing liabilities and the amount of noninterest-bearing deposits and equity used to fund our assets. As a result of our efforts to minimize interest rate risk, our net interest margin was 2.59% in 2007 and 2.58% in 2006 and 2005, despite significant variations in short-term market rates, including a change from a positively-sloped to a negatively-sloped yield curve. We experienced pricing pressure on incremental commercial loans in 2006 and early 2007 as a result of intense competition for loans, but were able to increase our pricing on new commercial loans in late 2007 as credit markets tightened. We also experienced compression of our interest rate spread as a result of mortgage-backed securities we acquired in 2005, 2006, and 2007, because mortgage-backed securities, while requiring less regulatory capital investment, typically carry a lower spread than loans. We also experienced some increases in interest expense in 2005 and 2006 as customers moved deposits from money-market and savings accounts to higher rate certificates of deposit. However, this was offset by an increase in the relative benefit of our net noninterest-bearing funds as market rates increased.

Our average noninterest-bearing demand deposits decreased 9% to $686 million in 2007. However, the net interest income benefit of our net noninterest-bearing funds was $3 million higher in 2007 than in 2006 as a result of higher overall interest rates during 2007.

As we are currently positioned, if interest rates remain relatively stable, it is likely our net interest margin will remain near its current level. However, if interest rates change significantly, our net interest margin is likely to decline. Please read Item 7A. Quantitative and Qualitative Disclosure About Market Risk for further quantitative information about the sensitivity of our net interest income to potential changes in interest rates.

To maintain our thrift charter, we are required to maintain 65% of our assets in HOLA-qualifying loans and investments, including loans with residential real estate collateral, mortgage-backed securities, small business loans, and consumer loans. At year-end 2007, 81% of our assets met the HOLA requirement. Although we do not currently anticipate dropping below the HOLA requirement, if our HOLA-qualifying assets continue to decrease or our commercial loan portfolio grows substantially, we would have to take actions, which might include adopting alternative structures, purchasing additional mortgage-backed securities, or converting Guaranty Bank to a commercial bank charter.

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Information about our composition of earning assets follows:

Year-End 2007	Year-End 2006

We include single-family mortgage loans, single-family construction loans to homebuilders, mortgage warehouse loans, and multifamily and senior housing loans in residential housing loans.

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Average balances, interest income and expense, and rates by major balance sheet categories were:

	For the Year
	2007							2006							2005
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in millions)
ASSETS
Cash equivalents	$	79	$	4		4.99	%	$	128	$	6		4.83	%	$	133	$	1		0.66	%
Loans held for sale		18		1		6.87	%		61		4		6.95	%		350		16		4.49	%
Loans(a)(b)		9,600		697		7.26	%		9,782		691		7.06	%		9,924		574		5.79	%
Securities		5,163		282		5.47	%		5,727		281		4.91	%		4,649		199		4.28	%
Investment in Federal Home Loan Bank stock		219		12		5.39	%		288		15		5.02	%		283		10		3.58	%
Total earning assets		15,079	$	996		6.61	%		15,986	$	997		6.24	%		15,339	$	800		5.22	%
Other assets		881							848							941
Total assets	$	15,960						$	16,834						$	16,280
LIABILITIES AND EQUITY
Interest-bearing deposits:
Interest-bearing demand	$	3,649	$	103		2.82	%	$	3,376	$	74		2.19	%	$	3,697	$	51		1.38	%
Savings deposits		185		1		0.72	%		207		1		0.73	%		235		2		0.70	%
Certificates of deposit		4,869		237		4.86	%		4,921		208		4.22	%		4,407		136		3.10	%
Total interest-bearing deposits		8,703		341		3.92	%		8,504		283		3.33	%		8,339		189		2.27	%
Short-term Federal Home Loan Bank borrowings		3,866		195		5.04	%		4,212		209		4.96	%		3,084		103		3.36	%
Long-term Federal Home Loan Bank borrowings		917		34		3.69	%		1,649		61		3.69	%		2,291		84		3.66	%
Securities sold under repurchase agreements		—		—		—			—		—		—			144		4		2.63	%
Other borrowings		106		9		8.42	%		107		9		8.14	%		106		7		6.68	%
Subordinated notes payable to trust		277		19		7.08	%		26		2		7.37	%		—		—		—
Preferred stock issued by subsidiaries		95		7		7.36	%		308		21		6.96	%		307		17		5.44	%
Total borrowings		5,261		264		5.02	%		6,302		302		4.79	%		5,932		215		3.63	%
Total interest-bearing liabilities		13,964	$	605		4.33	%		14,806	$	585		3.95	%		14,271	$	404		2.83	%
Interest rate spread						2.28	%						2.29	%						2.39	%
Noninterest-bearing demand deposits		686							757							699
Other liabilities		273							234							341
Stockholders’ equity		1,037							1,037							969
Total liabilities and stockholders’ equity	$	15,960						$	16,834						$	16,280
Impact of noninterest-bearing funds						0.31	%						0.29	%						0.19	%
Net interest income/margin			$	391		2.59	%			$	412		2.58	%			$	396		2.58	%

(a)	Includes nonaccrual loans.
(b)	Interest includes recognized loan fees of $27 million in 2007, $28 million in 2006, and $27 million in 2005.

The majority of our earning assets are variable rate. Increases in the rates earned on our assets in 2007, 2006, and 2005 are principally a result of increases in short-term market interest rates. These market rate increases also increased the rates we paid on our deposit liabilities and borrowings.

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Changes in net interest income attributable to changes in volume and rates were:

	2007 Compared with 2006									2006 Compared with 2005
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Total			Volume			Rate		Total
	(In millions)
Interest income:
Cash equivalents	$	(2	)	$	—		$	(2	)	$	—		$	5	$	5
Loans held for sale		(3	)		—			(3	)		(17	)		5		(12	)
Loans		(13	)		19			6			(8	)		125		117
Securities		(29	)		30			1			50			32		82
Investment in Federal Home Loan Bank stock		(4	)		1			(3	)		—			5		5
Total interest income		(51	)		50			(1	)		25			172		197
Interest expense:
Deposits:
Interest-bearing demand		6			23			29			(5	)		28		23
Savings deposits		—			—			—			(1	)		—		(1	)
Certificates of deposit		(2	)		31			29			18			54		72
Total interest on deposits		4			54			58			12			82		94
Short-term Federal Home Loan Bank borrowings		(17	)		3			(14	)		46			60		106
Long-term Federal Home Loan Bank borrowings		(27	)		—			(27	)		(24	)		1		(23	)
Securities sold under repurchase agreements		—			—			—			(8	)		4		(4	)
Other borrowings		—			—			—			—			2		2
Subordinated notes payable to trust		17			—			17			2			—		2
Preferred stock issued by subsidiaries		(15	)		1			(14	)		—			4		4
Total interest expense		(38	)		58			20			28			153		181
Net interest income	$	(13	)	$	(8	)	$	(21	)	$	(3	)	$	19	$	16

Provision For Credit Losses

We recorded $50 million in provision for credit losses in 2007 compared with $1 million in 2006. Weakness in single-family construction and single-family mortgage markets was the primary driver of the 2007 provision for credit losses. We experienced net recoveries of $3 million in 2007 and net charge-offs of $10 million in 2006. Our net recoveries in 2007 were principally related to recoveries associated with loans of the asset-based lending and leasing business we sold in 2006, offset by charge-offs of single-family mortgage and single-family construction loans. Charge-offs in 2006 were principally related to loans in the asset-based lending operations. Net (recoveries) charge-offs were (0.03)% of average loans in 2007 and 0.10% in 2006.

Please read “Risk Management — Credit Risk Management” for a discussion about how we manage credit risk and a discussion of our allowances for credit losses.

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Noninterest Income

Noninterest income consists of:

							Increase (Decrease)
							2007			2006
	For the Year						Compared			Compared
	2007		2006		2005		to 2006			to 2005
	(Dollars in millions)
Insurance commissions and fees	$	68	$	69	$	65	$	(1	)	$	4
Service charges on deposits		53		50		44		3			6
Commercial loan facility fees		16		26		25		(10	)		1
Operating lease income		7		7		6		—			1
Mutual fund and variable annuity sales commissions		7		6		4		1			2
Other		6		8		14		(2	)		(6	)
		157		166		158		(9	)		8
Loan origination and sale of loans		—		2		22		(2	)		(20	)
	$	157	$	168	$	180	$	(11	)	$	(12	)
Percent decrease for the year								(7	)%		(7	)%

Service charges on deposits consist principally of fees on transaction accounts. Deposit fees increased each year because of increases in transaction accounts as well as changes we made to the pricing of our overdraft charges.

Commercial loan facility fees consist of fees based on unfunded committed amounts, letter of credit fees, and syndication agent fees. The decrease in commercial loan facility fees was principally a result of less unfunded commitments and fewer sizable syndicated transactions. Noninterest income decreased in 2007 principally as a result of our exit from asset-based lending operations in 2006.

The decrease in loan origination and sale of loans was due to the elimination of our wholesale mortgage origination network in 2005 and the repositioning of our mortgage origination activities in 2004. Since then, we have not generated significant single-family mortgage loans from our correspondent mortgage operations and it is not certain we will be able to do so in 2008.

Information about our mortgage loan origination activities follows:

	For the Year
	2007		2006		2005
	(In millions)
Loans originated and retained	$	55	$	182	$	855
Loans sold to third parties		12		215		1,815

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Noninterest Expense

Noninterest expense consists of:

							Increase (Decrease)
							2007			2006
	For the Year						Compared			Compared
	2007		2006		2005		to 2006			to 2005
	(Dollars in millions)
Compensation and benefits	$	181	$	184	$	182	$	(3	)	$	2
Occupancy		28		28		27		—			1
Information systems and technology		14		14		16		—			(2	)
Shared services allocation from Temple-Inland		29		31		25		(2	)		6
Furniture, fixtures, and equipment		18		16		20		2			(4	)
Advertising and promotional		16		15		20		1			(5	)
Professional services		10		12		16		(2	)		(4	)
Travel and other employee costs		10		11		12		(1	)		(1	)
Postage, printing, and supplies		8		8		9		—			(1	)
Depreciation of assets leased to others		6		6		6		—			—
Litigation charge		5		—		—		5			—
Other		47		52		46		(5	)		6
		372		377		379		(5	)		(2	)
Charges related to asset impairments and severance		—		11		5		(11	)		6
	$	372	$	388	$	384	$	(16	)	$	4
Percent decrease for the year, excluding charges related to asset impairments and severance								(1	)%		(1	)%

In 2005, we began a program to expand our banking center network by constructing new retail bank branches in key markets. We opened six new branches in 2007, five new branches in 2006, and six new branches in 2005. We are evaluating construction of additional branches in 2008. We expect these new branches would provide us with additional deposit funding, including noninterest-bearing deposits, and will increase our noninterest income, but would also increase our noninterest expense as a result of additional compensation and depreciation expense by approximately $0.5 million per year for each new branch.

Charges related to asset impairments and severance in 2006 related principally to our exit from asset-based lending operations. Charges in 2005 related to the repositioning of our mortgage activities and the sale of our third-party mortgage servicing rights.

Income Tax Expense

Our effective tax rate, which is income tax expense as a percent of income before taxes, was 38% in 2007, 37% in 2006, and 36% in 2005. New tax laws were enacted effective 2007 in the State of Texas, increasing our effective tax rate. We anticipate our effective tax rate in 2008 will be similar to 2007.

Segment Performance Summary

We currently manage our business in four segments:

•  Commercial banking,

•  Retail banking,

•  Insurance agency, and

•  Treasury, corporate and other.

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We formerly operated a mortgage banking segment, which we exited in 2006, though we continue to have some expenses from contractual obligations associated with those former operations. We expect those expenses will continue to decrease as we exit many of those contractual obligations.

Segment operating income (loss), which we measure exclusive of taxes, consists of:

	For the Year
	2007			2006			2005
	(In millions)
Commercial banking	$	198		$	257		$	244
Retail banking		(29	)		(5	)		(17	)
Insurance agency		7			10			10
Mortgage banking		(12	)		(17	)		(28	)
Treasury, corporate and other		(38	)		(54	)		(27	)
	$	126		$	191		$	182

Commercial Banking

Commercial banking offers loan and other credit products to residential construction, commercial real estate construction, mortgage warehouse, energy, corporate, and middle market customers. This segment also manages our single-family mortgage loan portfolio and provides commercial deposit and treasury management products and services. Changes in commercial banking’s segment operating income are principally related to changes in the amount of credit losses we recognized in each year. In 2007, we recorded $41 million in commercial loan provision for credit losses, principally related to our single-family construction portfolio. In 2006, we received $5 million in recoveries related to asset-based lending relationships that reduced our recorded provision for credit losses. In 2005, we recognized $9 million in loan loss provision for a lease to a customer that filed for bankruptcy protection.

Commercial banking’s portfolio has remained relatively stable, although there have been changes in the mix. In 2007, outstanding balances in most of our commercial banking lines of business increased, and we decreased outstanding balances in single-family construction and single-family mortgage loans. In 2006, commercial real estate construction loans and energy loans grew, and we sold our asset-based lending portfolio. The single-family mortgage loan portfolio has decreased over the last two years because repayments on loans have exceeded new loan purchases. Commercial banking’s noninterest expenses have decreased since 2004 as a result of our exit from our asset-based lending and leasing operations and cost control efforts.

Retail Banking

Retail banking includes our branch network, consumer lending, and local business lending. Through our branches, we offer a broad range of financial products and services to consumers and small businesses, including traditional deposit services, lending products and non-deposit investment products, including mutual funds and fixed and variable annuity products. In 2007, segment operating results declined as a result of increased pricing competition for interest-bearing deposits, despite declining costs of wholesale funding, which we use to determine earnings credits for segment liabilities. Improvements in segment operating results in 2006 and 2005 were principally related to increased net interest income earned by the segment on its deposits as a result of increases in market interest rates. Segment net interest income increased partially because rates paid on interest-bearing deposits had not increased as much in those years as wholesale funding rates, and partially because of the increase in the relative benefit of net noninterest-bearing funds as market rates increased. Retail banking noninterest expense increased in 2007, 2006, and 2005 partially because of the 17 new branches opened since 2004. Deposits gathered by the retail banking segment were largely unchanged in 2007 and increased 2% in 2006.

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Insurance Agency

Insurance agency includes regional offices in Texas and California that offer a comprehensive array of insurance products to consumer and commercial customers including property and casualty insurance, life and health insurance, and construction bonds, for which we receive commissions. Through our retail banking branch network, our insurance agency also sells fixed annuity products, and manages sales of mutual funds and variable annuity products offered by a non-affiliated broker-dealer. With the exception of 2007, our insurance agency commissions and fees have increased over the last several years as a result of business from agencies we have acquired. However, those increases have been offset by compensation related to an increase in the number of sales employees and amortization of acquired customer relationship intangibles. Additionally, agency commissions received from insurance carriers decreased in 2007 because premiums for the products sold have decreased in the market.

Treasury, corporate and other

Treasury, corporate and other includes our mortgage-backed security portfolio, borrowings from third parties, results of managing our asset/liability position and expenses not allocated to other segments. Changes in segment operating income relate principally to the residual impact of funds transfer pricing during a period of varying interest rates, and also to charges related to asset impairments and severance.

Financial Condition

Loans

The composition of our loans at year-end 2007 follows:

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The loan portfolio consists of:

	At Year-End
	2007						2006						2005						2004						2003
				% of						% of						% of						% of						% of
	Amount			Total			Amount			Total			Amount			Total			Amount			Total			Amount			Total
	(Dollar in millions)
Single-family mortgage	$	1,672			17	%	$	2,323			24	%	$	3,112			31	%	$	3,560			37	%	$	3,255			36	%
Single-family mortgage warehouse		695			7	%		795			8	%		757			8	%		580			6	%		387			4	%
Single-family construction		1,510			15	%		1,782			18	%		1,665			17	%		1,303			13	%		888			10	%
Multifamily and senior housing		1,541			15	%		1,270			13	%		1,469			15	%		1,454			15	%		1,769			19	%
Total residential housing		5,418			54	%		6,170			63	%		7,003			71	%		6,897			71	%		6,299			69	%
Commercial real estate		1,674			17	%		1,227			13	%		758			8	%		709			7	%		1,015			11	%
Commercial and business		1,340			13	%		1,012			10	%		843			8	%		746			8	%		585			7	%
Energy		1,470			15	%		1,117			12	%		756			7	%		717			7	%		562			6	%
Asset-based lending and leasing (sold in 2006)		—			—			—			—			395			4	%		428			5	%		499			5	%
Consumer and other		144			1	%		156			2	%		164			2	%		206			2	%		176			2	%
Total loans		10,046			100	%		9,682			100	%		9,919			100	%		9,703			100	%		9,136			100	%
Less allowance for loan losses		(118	)					(65	)					(74	)					(85	)					(111	)
Loans, net	$	9,928					$	9,617					$	9,845					$	9,618					$	9,025

Single-family mortgage loans declined in 2007 because payments on single-family mortgage loans exceeded new single-family mortgage loan purchases from our correspondent mortgage warehouse borrowers. New single-family mortgage loan purchases were limited in 2007 because the interest rate environment in early 2007 was not conducive to significant production of adjustable-rate mortgages, which we generally hold. Additionally, credit market disruptions in late 2007 significantly reduced market production of non-agency loans (including loans larger than government agency maximum loan amounts), which we expect to purchase through our correspondent mortgage operations. The decrease in our single-family loan portfolio has continued since we eliminated our wholesale mortgage production network in early 2006. One benefit of our lack of significant mortgage loan purchases since then is that very little of our single-family mortgage loan portfolio was originated in 2006 and 2007, years generally considered in the industry to have suffered from weaker credit standards.

Information about the year of origination of our single-family mortgage loans at year-end 2007 follows:

	(In millions)		% of Total
2007	$	40		2	%
2006		39		2	%
2005		354		21	%
2004		462		28	%
2003 and prior		777		47	%
	$	1,672		100	%

It is uncertain whether our correspondent mortgage operations will generate a significant volume of mortgage loans in 2008. If not, our single-family mortgage loans will continue to decrease throughout 2008. We anticipate our commercial real estate loans outstanding will continue to increase in 2008 as we fund draws on committed construction loans, partially offsetting decreases in single-family mortgage loans. As a result, we expect our residential housing loans as a percentage of earning assets will continue to decline.

A portion of our single-family mortgage loans consists of adjustable-rate mortgages that have various monthly payment options, which we refer to as Option ARMs. These loans generally include the ability to select from fully amortizing payments, interest-only payments, and payments less than the interest accrual rate that results in negative amortization increasing the principal amount of the loan. Negative amortization is

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subject to various limitations, typically including a 110% maximum principal balance as a percent of original principal balance, which limits the maximum loan-to-value ratio, or LTV, that can be reached. We underwrite borrowers on Option ARMs at fully amortizing payment amounts, and typically restrict the LTV at loan origination to 80%. At year-end 2007, residential housing loans included $502 million of Option ARMs. The weighted average origination date LTV of those loans was 74%. We recognized interest income on loans from borrowers that elected negative amortization payment options of $7 million in 2007, $11 million in 2006, and $4 million in 2005.

When Option ARMs reach contractual negative amortization limits, the minimum payments are contractually reset to the amount necessary to amortize the remaining principal over the remaining loan term. We expect payment resets on Option ARMs as follows:

	(In millions)		% of Total
2008:
First quarter	$	43		9	%
Second quarter		50		10	%
Third quarter		76		15	%
Fourth quarter		51		10	%
Thereafter		282		56	%
	$	502		100	%

Single-family mortgage loans also include $709 million of intermediate ARM loans that have fixed interest rates for the first several years following origination and then reset to a monthly variable interest rate. We expect $369 million of these loans’ fixed rates will reset to variable rates in 2008, from an average fixed rate of 4.9% to a variable rate of 5.3%. When the interest rates on the loans reset, the payments on most of these loans will also reset from an interest-only payment to a payment incorporating principal amortization.

Information about our single-family mortgage loans, by category, at year-end follows:

	2007					2006
	Total Delinquency			Unpaid		Total Delinquency			Unpaid
	> 30 days			Principal Balance		> 30 days			Principal Balance
				(In millions)					(In millions)
Option ARMs		10.80	%	$	502		3.17	%	$	678
Intermediate ARM		3.27	%		709		1.24	%		1,192
Other first liens		8.00	%		279		5.82	%		225
Repurchased loans		41.64	%		35		46.62	%		35
Second liens		1.54	%		147		1.79	%		193
		6.97	%	$	1,672		2.97	%	$	2,323

The single-family construction portfolio consists of loans to finance homebuilding activities, including construction and acquisition of developed lots and undeveloped land. We finance homebuilding activities in many cities across the United States. Our borrowers consist of over 100 national, regional and local homebuilders in over 25 markets. Single-family construction loans decreased in 2007 because of current conditions in the residential housing market resulting in decreased construction activity by those customers and also our exit from some credit relationships. It is likely this trend will continue and also likely we will experience charge-offs and provide for credit losses in 2008 related to single-family construction loans. Loans to regional and local homebuilders are typically secured by homes under construction, lots or land to be developed. Loans to national homebuilders are often unsecured. At year-end 2007, $593 million of our single-family construction loans were secured by completed houses or houses under construction, and $587 million were secured by lots or land. Please read “Risk Management — Credit Risk Management” for further information regarding credit risk characteristics of our single-family construction loan portfolio.

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Commercial real estate loan growth in 2007 and 2006 was a result of strong borrower demand in many of our target markets, including office and retail rental space. Properties in California and Texas collateralize approximately 53% of our outstanding commercial real estate loans. Our unfunded commercial real estate commitments were approximately $1.0 billion at year-end 2007. We expect our outstanding commercial real estate balances will continue to increase as projects for which we have remaining unfunded loan commitments progress toward completion.

Commercial and business loans grew in 2007 and 2006 as we continued our focus on commercial lending, including lending to companies through smaller syndicated lending arrangements.

The energy portfolio has experienced significant growth primarily as a result of new customer relationships as well as increased loan commitments to existing customers, in part driven by increasing collateral values as energy prices continue to increase. The energy portfolio customers are primarily headquartered in Texas, Oklahoma, California, and Louisiana. The energy loans are predominantly secured by proven oil and gas reserves. Additionally, some loans are secured by crude oil, natural gas pipeline assets, or working capital assets. We perform an extensive credit underwriting and engineering evaluation process on energy loans before committing to lend. For oil and gas reserve-based loans, we employ our own petroleum engineering professionals with significant industry experience. Our engineering staff evaluates the collateral value of each borrower’s assets using internally-approved underwriting standards and forward commodity price assumptions to estimate the discounted present value of the underlying oil and gas collateral.

Construction, commercial and business and energy loans by maturity date at year-end 2007 were:

																			Commercial and
	Single-Family						Multifamily and						Commercial						Business and
	Construction						Senior Housing						Real Estate						Energy
	Variable				Fixed		Variable				Fixed		Variable				Fixed		Variable				Fixed
	Rate				Rate		Rate				Rate		Rate				Rate		Rate				Rate		Total
	(In millions)
Due within one year	$	1,223			$	5	$	990			$	—	$	1,565			$	1	$	2,128			$	15	$	5,927
After one but within five years		282				—		323				38		91				15		578				4		1,331
After five years		—				—		186				4		2				—		85				—		277
	$	1,505			$	5	$	1,499			$	42	$	1,658			$	16	$	2,791			$	19
			$	1,510					$	1,541					$	1,674					$	2,810			$	7,535

The actual repayment dates of loans may vary significantly from contractual maturities as a result of early payoffs, loan extensions, and other factors. The uncertainties of future events, particularly with respect to interest rates, make it difficult to predict the actual repayment dates.

Investment Securities

The following charts summarize the fair value distribution of our mortgage-backed securities portfolio at year-end 2007.

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By Issuer	By Type

All of the securities we own have single-family residential mortgage loans as the underlying assets. All of the private issuer securities we own involve tranches subordinate to our securities in the cash flow distribution from the underlying assets. As a result, those subordinated tranches absorb credit losses before any losses are attributable to our securities. The subordinated tranches for the securities we own do not include guarantees by third-party insurers. At year-end 2007, subordinated tranches averaged 14.5% of the outstanding balances of the loan pools underlying the securities we own, and 11.3% of those loans were delinquent on their payments. At year-end 2006, subordinated tranches averaged 13.4% of the loan pools underlying the securities we own and 4.3% of the loans were delinquent. None of the securities have sub-prime loans as underlying assets. Additionally, none of the securities are collateralized debt obligations or subordinated tranches.

The current environment in the housing and credit markets has resulted in significant devaluation of many securities backed by mortgage assets. At year-end 2007, all of the private issuer securities we own carried AAA ratings from two different nationally recognized securities rating organizations, and none have been subsequently downgraded. However, market values have also declined substantially for private issuer AAA-rated securities. Though identification of market value is currently difficult because of limited trading activity of these types of securities, we believe the fair value of the mortgage-backed securities we own was $265 million less than our amortized cost at year-end 2007. We have recorded $54 million of this decline in the carrying value of securities we classify as available-for-sale; the remainder relates to securities we classify as held-to-maturity and therefore we have not recorded those declines in the carrying value of the related securities.

Based on our most recent analyses of delinquencies and subordinated tranches, we continue to believe we will receive all contractual amounts due on the private issuer securities. We do not have any plans to sell any of the securities and believe we will be able to hold them until repayment; therefore we have not recorded any of the unrealized declines in value in our earnings.

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Information about our mortgage-backed securities portfolio at year-end 2007 follows:

			Unrealized					Unrealized
			Gain(Loss) on					Gain(Loss) on
	Amortized		Available-for-Sale			Carrying		Held-to-Maturity			Fair
	Cost		Securities			Value		Securities			Value
	(In millions)
U.S. Government and U.S. Government Sponsored Enterprises	$	1,795	$	—		$	1,795	$	1		$	1,796
Private Issuer:
Internally valued		3,575		(54	)		3,521		(212	)		3,309
Market quotes		204		—			204		—			204
	$	5,574	$	(54	)	$	5,520	$	(211	)	$	5,309

Information about our private issuer securities at year-end 2007 follows:

													Unpaid
Issuer and Underlying					Delinquency%						Subordi-		Principal		Carrying
Asset Type	Tranche		Cusip		Total			>60 day			nation%	Loan Originator	Balance		Value		Fair Value
													(In millions)
12MTA Option ARM
Structured Asset Mortgage Investment II Trust 2007-AR6		Class A2		86364RAB5		7	%		2	%	11%	American Home Mortgage Corp.	$	419	$	396	$	396	*
RALI 2007-QO5 Trust		Class A		74924AAA3		7	%		3	%	11%	Homecomings Financial		209		196		196	*
Alternative Loan Trust 2005-81		Class A-4		12668BBR3		16	%		11	%	14%	Countrywide Home Loans		147		149		130
Structured Asset Mortgage Investment II Trust 2005-AR8		Class A-5		86359LSB6		19	%		13	%	12%	Countrywide Home Loans		140		142		125
Alternative Loan Trust 2006-OA2		Class A-7		126694V88		22	%		16	%	16%	Countrywide Home Loans		135		139		122
Alternative Loan Trust 2005-76		Class 1-A-2		12668BDD2		20	%		14	%	17%	Countrywide Home Loans		128		130		114
Alternative Loan Trust 2005-58		Class A-3		12668AWK7		20	%		14	%	15%	Countrywide Home Loans		128		130		113
Alternative Loan Trust 2005-51		Class 3-A-1		12668ACW3		18	%		12	%	17%	Countrywide Home Loans		128		130		113
Alternative Loan Trust 2005-62		Class 1-A-2		12668ATP0		22	%		15	%	18%	Countrywide Home Loans		120		122		106
RALI Series 2005-QO5 Trust		Class A-3		761118QP6		16	%		11	%	15%	Homecomings Financial Network, SCME, MortgageIT, Other		103		105		91
RALI Series 2005-Q01 Trust		Class A-4		761118ER5		12	%		7	%	17%	Homecomings Financial Network, Other		93		94		83
Alternative Loan Trust 2005-38		Class A-2		12667GZ22		20	%		14	%	19%	Countrywide Home Loans		77		78		76
Alternative Loan Trust 2005-41		Class 2-A-1		12667GR96		19	%		13	%	20%	Countrywide Home Loans		73		74		71
Structured Asset Mortgage Investments II Trust 2006-AR3		Class 12A4		86360KAH1		21	%		15	%	14%	Countrywide Home Loans, Bank of America, and other		71		73		64
Harborview Mortgage Loan Trust 2005-8		Class 2A3		41161PRT2		13	%		10	%	10%	Countrywide Home Loans		67		68		65
Greenpoint Mortgage Funding Trust 2005-AR5		Class I-A-2		39538WEC8		20	%		13	%	22%	Greenpoint Mortgage Funding		59		61		59
Structured Asset Mortgage Investments II Trust 2005-AR4		Class A2		86359LMA4		21	%		17	%	22%	Countrywide Home Loans		59		60		58
WaMu Mortgage Pass-Through Certificates, Series 2005-AR9		Class A2A		92922FU97		4	%		2	%	19%	One or more approved institutions		56		57		55
Structured Asset Mortgage Investments II Trust 2005-AR7		Class 5A2		86359LQT9		14	%		9	%	18%	Southstar Funding LLC/Opteum Financial Services LLC, First Horizon, BOA, other		41		42		37
Greenpoint Mortgage Funding Trust 2006-AR3		Class 4A3		39538WHH4		12	%		8	%	14%	Greenpoint Mortgage Funding		39		41		36
Harborview Mortgage Loan Trust 2005-16		Class 4A1B		41161PZD8		15	%		11	%	20%	Countrywide Home Loans		32		33		29
IndyMac INDX Mortgage Loan Trust 2005-16IP		Class A3		45660LUF4		9	%		6	%	19%	IndyMac Bank, F.S.B.		30		31		31
														2,354		2,351		2,170

* Security designated as available-for-sale

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													Unpaid
Issuer and Underlying					Delinquency%						Subordi-		Principal		Carrying
Asset Type	Tranche		Cusip		Total			>60 day			nation%	Loan Originator	Balance		Value		Fair Value
													(In millions)
Hybrid Option ARM (5Y Fixed/12MTA)
RALI 2007-QH8 Trust		Class A		74924EAA5		6	%		3	%	12%	Homecomings Financial		486		481		481	*
COFI Option ARM
WaMu Mortgage Pass-Through Certificates 2007-OA4		Class 2A		93364CAC2		6	%		3	%	12%	Washington Mutual Bank		138		130		130	*
Washington Mutual Mortgage Pass-Through Certificates WMALT 2007-OA3 Trust		Class 5A		939355AE3		10	%		5	%	13%	Washington Mutual Bank or others, MortgageIT		126		126		120
WaMu Mortgage Pass-Through Certificates 2007-OA5		Class 2A		93364BAC4		7	%		4	%	13%	Washington Mutual Bank		110		104		104	*
WaMu Mortgage Pass Through Certificates 2006-AR9		Class 2A-1B		93363DAC1		4	%		2	%	10%	Washington Mutual Bank		90		90		84
WaMu Mortgage Pass Through Certificates 2006-AR9		Class 2A		93363DAB3		4	%		2	%	36%	Washington Mutual Bank		57		57		53
WaMu Mortgage Pass Through Certificates 2006-AR11		Class 2A-1B		93363TAC6		5	%		3	%	10%	Washington Mutual Bank		46		46		42
WaMu Mortgage Pass Through Certificates 2006-AR13		Class 2A-1B		93363RAC0		5	%		2	%	10%	Washington Mutual Bank		40		40		37
WaMu Mortgage Pass Through Certificates 2006-AR15		Class 2A-1B		93363QAD0		6	%		3	%	9%	Washington Mutual Bank		33		33		30
WaMu Mortgage Pass Through Certificates 2006-AR17		Class 2A-1B		92925DAE0		4	%		2	%	9%	Washington Mutual Bank		26		26		24
WaMu Mortgage Pass Through Certificates 2006-AR19		Class 2A		933638ADO		5	%		3	%	39%	Washington Mutual Bank		22		22		20
WaMu Mortgage Pass Through Certificates 2006-AR19		Class 2A-1B		933638AE8		5	%		3	%	9%	Washington Mutual Bank		14		14		13
Home Savings of America		1988-7A		436904AG1		—			—		134%	Not Available		1		1		1	*
Home Savings of America		1988-8A		436904AJ5		—			—		93%	Not Available		2		2		2	*
Home Savings of America		1988-10A		436904AK2		—			—		111%	Not Available		1		1		1	*
Home Savings of America		1988-11A		436904AL0		—			—		102%	Not Available		1		1		1	*
														707		693		662
5/1 LIBOR
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2004-H		Class 2A1		05949ARD4		3	%		1	%	7%	Bank of America, N.A.		45		45		45
GSR Mortgage Loan Trust 2004-11		Class 2A1		36242DFS7		2	%		2	%	9%	Various Lenders		45		45		45
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-K		Class 2A2		05948XZH7		1	%		1	%	7%	Bank of America, N.A.		36		36		36
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-H		Class 2A2		05948XTH4		1	%		1	%	6%	Bank of America, N.A.		32		32		32
GSR Mortgage Loan Trust 2003-9		Class A2		36228FWS1		2	%		1	%	8%	Various Lenders		25		25		25
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-D		Class 2A3		05948XBU4		1	%		1	%	8%	Bank of America, N.A.		12		12		12
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-A		Class 2A1		05948LAE7		2	%		2	%	9%	Bank of America, N.A.		5		5		5
														200		200		200
						11	%		7	%			$	3,747	$	3,725	$	3,513

* Security designated as available-for-sale

37

Information about the geographic distribution of the mortgage loans underlying the private issuer securities we own at year-end 2007 follows:

California	55	%
Florida	9	%
Arizona	2	%
Other	8	%
Not Available	26	%
	100	%

The mortgage-backed securities we purchased in 2007, 2006, and 2005, and a portion of the securities we purchased in previous years have Option ARMs as the underlying assets. The amortized cost of Option ARM securities in our portfolio at year-end 2007 was $4.2 billion. Of these, $590 million were issued by U.S. Government Sponsored Enterprises (FNMA, FHLMC), and the remaining $3.6 billion are senior tranches issued by private issuer institutions.

The interest rate on many of our mortgage-backed securities does not change by the same amount as broad-market indexes because of lagging characteristics of their referenced prices. Securities that we refer to as 12MTA have rates determined based upon a 12-month moving average of 1-year constant-maturity United States Treasury yields, plus various margins. Securities that we refer to as COFI have rates determined based upon the monthly cost of funds of institutions in the 11th District of the Federal Home Loan Bank System, plus various margins. The interest rates of our intermediate adjustable rate mortgage securities are generally fixed for five years from issuance, then change to a floating rate based on the London Interbank Offered Rate (“LIBOR”), plus various margins. In 2007, 2006, and 2005, the average yield on our mortgage-backed securities increased as a result of the general increase in market rates because the majority of our

38

securities reprice monthly. At year-end 2007, our mortgage-backed securities classified as held-to-maturity had a yield of 5.30% and our mortgage-backed securities classified as available-for-sale had a yield of 6.12%.

The underlying loans for the majority of our intermediate adjustable-rate mortgage securities will enter the monthly variable rate period of their contracts beginning in 2008. Because many of those loans could likely be refinanced by the borrowers at fixed rates or new intermediate adjustable rate payments less than the payments the loans will have upon entering into their variable rate period, we anticipate many of the underlying loans will be repaid at, or shortly following, entering into the variable rate period. Therefore, we expect significant reductions in outstanding balances on those securities in the next 12 months.

Mortgage loans underlying mortgage-backed securities we hold generally have initial contractual maturities ranging from 15 to 40 years with principal and interest installments due monthly. The actual repayment of mortgage-backed securities may differ from the contractual maturities of the underlying loans because issuers or mortgagors may have the right to call or prepay their securities or loans.

Prior to 2007, we historically classified the majority of our investment securities purchases as held-to-maturity and therefore report those securities at amortized cost in our balance sheet. Though we have no plans to sell any of our securities, in 2007 we began classifying new securities purchases as available-for-sale and anticipate classifying future purchases as available-for-sale. We report those securities at fair value in our balance sheet, with unrealized gains and losses reported in accumulated other comprehensive income in stockholders’ equity.

Deposits

Deposits consist of:

Year-End 2007	Year-End 2006

Included in transaction accounts are interest-bearing checking accounts totaling $1.1 billion in 2007 for which we recorded interest expense at an average rate of 0.5%, and $1.3 billion in 2006 for which we recorded interest expense at an average rate of 0.9%. Our deposits decreased 1% in 2007. We have grown noninterest-bearing demand deposits by $260 million or 50% since 2004. However, with increasing market rates in 2006, customer demand shifted from noninterest-bearing and lower cost deposits to higher cost interest-bearing demand deposits and certificates of deposit and that trend continued into 2007. As a result, our noninterest-bearing deposits declined in 2007.

39

Deposits by region were:

	At Year-End
	2007		2006
	(In millions)
Retail deposits:
California	$	2,447	$	2,592
Texas		6,402		6,287
Commercial deposits		526		607
	$	9,375	$	9,486

Our weighted-average cost for deposits, including noninterest-bearing deposits, was 3.63% at year-end 2007, up from 3.06% at year-end 2006.

Scheduled maturities of certificates of deposit at year-end 2007 were:

	$100,000		Less Than
	or More		$100,000		Total
	(In millions)
2008	$	1,401	$	2,889	$	4,290
2009		106		246		352
Thereafter		29		105		134
	$	1,536	$	3,240	$	4,776

Approximately 32% of our certificates of deposits at year-end 2007 exceeded $100,000. Substantially all of these certificates of deposit were originated in our standard deposit gathering activities and were not obtained through brokered deposit or other wholesale funding channels. Certificates of deposit in excess of $100,000 have remained relatively stable for a number of years.

Borrowings

Our primary borrowings are from the Federal Home Loan Bank of Dallas, or FHLB. Our FHLB borrowings consist of both short-term and long-term borrowings. Short-term borrowings are generally 7 to 30 days in maturity, and we use them to meet daily liquidity needs. We utilize longer-term FHLB borrowings at times to match the interest rate characteristics of some of our assets, such as those that reprice after three to five years.

Borrowings also include subordinated notes payable to trust, which we issued in 2006 and early 2007 to fund our 2007 redemption of preferred stock issued by subsidiaries. The subordinated notes payable to trust are variable rate, have a term of 30 years and are callable after 5 years. As approved by the OTS, we include proceeds from the subordinated notes payable to trust in Guaranty Bank’s regulatory capital. As a result, if we should ever decide to redeem the subordinated notes payable to trust, we would likely first need to obtain alternative regulatory capital. It is possible we will issue additional subordinated notes payable to trust in the future as a method of providing regulatory capital to Guaranty Bank. Additionally, we may issue subordinated debt from Guaranty Bank, which would, if appropriately structured, qualify as a form of regulatory capital to Guaranty Bank.

We have a revolving credit facility with availably capacity of $40 million to support our liquidity needs at the holding company level. The revolving credit facility has a two year term and includes financial and other covenants we must maintain. At year-end 2007, we were in compliance with all covenants. We had not drawn any amounts under the revolving credit facility as of year-end 2007.

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Risk Management

We face a number of risks specific to the financial services industry. Principal among these are credit risk and interest rate risk. Our goal in managing these risks is to maximize earnings while maintaining risk at an acceptable level as established in policies approved by our board of directors.

Credit Risk Management

Credit risk is the possibility of loss from the failure of a borrower or contractual counterparty to perform fully under the terms of a contract. The majority of our credit risk is from our lending activities. We have established formal loan policies and loan approval committees to ensure consistent underwriting and a basis for sound credit decisions. We utilize a comprehensive risk rating system to determine the risk of new and existing loans and utilize those grades in determining loan pricing. We have a credit risk function separate from our lending function. The credit risk function provides independent evaluation of the credit risk of our lending activities, ensures we follow our policies designed to minimize credit risk, and verifies the risk rating assigned to each credit is accurate and justified. The credit risk function utilizes statistics and modeling techniques to provide detailed assessments of our lending portfolios.

In addition to lending activities, investing in mortgage-backed securities involves credit risk, as do certain deposit activities. Our treasury and deposit departments have credit risk management processes in place to manage credit risk in these activities.

Loan Approval and Underwriting

Loan approval authorities are delegated by our board of directors to loan committees and in certain limited circumstances to individual loan officers. We underwrite loans and approve them in accordance with specific lending policies and standards. The committees consider the underwriting information presented by the lender, the lending policies established for the type of loan, and information provided by the credit administration function regarding the risk of the loan.

For real estate collateralized loans, our policies include collateral guidelines that vary with the creditworthiness of the borrower, but generally require loan-to-value ratios at origination, based on independent appraisals, not to exceed:

•  80% for commercial real estate,

•  80% for residential construction,

•  65% for developed land,

•  50% for undeveloped land, and

•  90% for first-lien single-family loans (with amounts in excess of 80% guaranteed by third-party mortgage insurers).

We may choose to make loans with loan-to-value ratios in excess of these guidelines, but when we do, the collateral risk is typically offset by other underwriting considerations, such as a creditworthy guarantor, a pre-sale arrangement, or a third-party refinancing commitment from another lender.

We generally limit our energy loans to 65% of the estimated value of the oil and gas reserve collateral. Our commercial and business loans may be unsecured, or we may obtain collateral in the form of liens or pledges of machinery and equipment, inventory or accounts receivable. Regardless of collateralization, we underwrite energy and commercial and business loans based upon the expected ability of the borrower to repay the loan from operating cash flows.

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Concentration

Our real estate collateralized loans are spread geographically throughout the United States. We believe the property-type and geographic diversity of our real estate loans reduces our risk. Information about the property-type and geographic diversity of our real estate collateralized loans at year-end 2007, follows:

	Percentage of Unpaid Principal Balance by Category
													Commercial
	Single-Family			Single-Family			Senior			Multifamily			Real Estate
	Mortgage			Construction			Housing			Construction			Construction			Total
California		54	%		35	%		17	%		27	%		29	%		35	%
Texas		12	%		11	%		10	%		34	%		24	%		17	%
Florida		6	%		9	%		6	%		3	%		11	%		8	%
Arizona		1	%		6	%		13	%		10	%		8	%		7	%
Georgia		3	%		3	%		2	%		6	%		9	%		5	%
Other		24	%		36	%		52	%		20	%		19	%		28	%
		100	%		100	%		100	%		100	%		100	%		100	%

Information about the underlying collateral and geographic location of our single-family construction loans, including local, regional, and national homebuilders at year-end 2007, follows:

			Lots and Land
	Single-Family		Acquisition and
	Houses		Development		Other			Total
	(In millions)
California	$	188	$	312	$	33		$	533
Texas		109		29		24			162
Florida		52		36		47			135
Arizona		30		36		20			86
Colorado		51		34		—			85
Other		163		140		206	(a)		509
	$	593	$	587	$	330		$	1,510

^(a) Principally unsecured loans to national homebuilders

Our commercial real estate construction loans are further diversified across a number of different property types. Information about those loans at year-end 2007 follows:

	% of			% of
	Commercial			Total Loan
	Real Estate			Portfolio
Office		42	%		7	%
Retail		23	%		4	%
Industrial		17	%		3	%
Land		10	%		2	%
Other		8	%		1	%
		100	%		17	%

Our energy borrowers are predominantly based in Texas, Oklahoma, California, and Louisiana, with underlying collateral in those states. The value of the collateral pledged by our energy borrowers is affected significantly by the market price of those commodities, as well as the value of any hedging contracts our borrowers have in place.

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We originate and maintain large credit relationships with a number of customers in the ordinary course of business as a result of the types of lending in which we engage. At year-end 2007, we had 19 customers for which we had loan commitments exceeding $100 million. Information about these relationships follows:

					Distribution of
					Largest 19
					Credit
	Commitment		Outstanding		Relationships
	(In millions)
Commercial real estate, multifamily and senior housing construction	$	1,319	$	805		12
Energy		489		420		4
Single-family construction		340		71		3
	$	2,148	$	1,296		19

Asset Quality and Allowance for Credit Losses

In analyzing the adequacy of our allowance for credit losses, we utilize a risk rating system to evaluate the credit risk of our loans. We assign risk ratings to individual loans as part of the credit approval process and adjust them periodically to reflect changes in certain loan-related conditions. We reduce the net carrying amount of loans for which we believe we will be unable to collect all principal and interest to their fair value or the fair value of the collateral. We also record reserves for our estimate of incurred losses that have not been identified at the loan level. We base our estimates of these losses on historical charge-off rates adjusted for current market and environmental factors that we believe are not reflected in historical data. We evaluate these estimated percentages annually and more frequently when portfolio characteristics change significantly.

Considerations that influence our judgments regarding the adequacy of the allowance for loan losses and the amounts charged to expense include:

•  economic market conditions affecting borrower liquidity and collateral values;

•  risk characteristics for groups of loans that are not considered individually impaired but we believe have probable losses;

•  risk characteristics for homogeneous pools of loans;

•  volumes and trends of delinquencies, nonaccrual loans, repossessions, and bankruptcies;

•  trends in criticized and classified loans; and

•  other risk factors that we believe are not apparent in historical information.

Various asset quality measures we monitor are:

	At Year-End
	2007			2006			2005
	(Dollars in millions)
Non-performing loans	$	166		$	26		$	35
Foreclosed real estate		13			5			2
Non-performing assets	$	179		$	31		$	37
Non-performing loans as a percentage of total loans		1.65	%		0.27	%		0.35	%
Non-performing assets divided by total loans and foreclosed real estate		1.78	%		0.32	%		0.37	%
Allowance for loan losses as a percentage of non-performing loans		71	%		253	%		213	%
Allowance for loan losses as a percentage of total loans		1.17	%		0.68	%		0.75	%
Single-family mortgage loan delinquencies as a percentage of single-family mortgage loans		6.97	%		2.97	%		2.00	%

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Changes in our allowance for loan losses and summary of nonaccrual and other loans were:

	For the Year
	2007			2006			2005			2004			2003
	(Dollars in millions)
Balance at beginning of year	$	65		$	74		$	85		$	111		$	132
Charge-offs:
Single-family mortgage		(3	)		(2	)		(2	)		—			(1	)
Single-family construction		(4	)		—			—			—			—
Multifamily and senior housing		—			—			(1	)		(3	)		—
Total residential housing		(7	)		(2	)		(3	)		(3	)		(1	)
Commercial real estate		—			—			—			(6	)		(11	)
Commercial and business		(3	)		(2	)		(11	)		(2	)		(2	)
Asset-based lending and leasing		—			(14	)		(9	)		(1	)		(57	)
Consumer and other		(1	)		—			—			(3	)		(2	)
Total charge-offs		(11	)		(18	)		(23	)		(15	)		(73	)
Recoveries:
Single-family mortgage		1			1			—			—			—
Single-family mortgage warehouse		—			—			—			1			4
Multifamily and senior housing		—			2			2			—			—
Total residential housing		1			3			2			1			4
Commercial real estate		—			—			1			1			—
Commercial and business		13			—			1			—			—
Asset-based lending and leasing		—			5			1			5			5
Consumer and other		—			—			—			1			—
Total recoveries		14			8			5			8			9
Net (charge-offs) recoveries		3			(10	)		(18	)		(7	)		(64	)
Provision (credit) for loan losses		50			1			7			(12	)		43
Transfer to reserve for unfunded credit commitments		—			—			—			(7	)		—
Balance at year-end	$	118		$	65		$	74		$	85		$	111
Nonaccrual loans	$	166		$	26		$	35		$	50		$	65
Accruing loans past-due 90 days or more	$	6		$	5		$	8		$	1		$	3
Net charge-offs (recoveries) as a percentage of average loans outstanding		(0.03	)%		0.10	%		0.21	%		0.07	%		0.66	%

Conditions in the residential housing and credit markets have deteriorated substantially from the favorable conditions of the several years prior to 2007. Homebuilders are finding it increasingly difficult to sell properties without reducing prices, increasing incentives or both. In some markets, including several where we have borrowing customers, values have declined to the point where the builders are unable to profitably complete homes and land development projects. As a result, our asset quality measures have deteriorated substantially, including an increase in non-performing assets and much higher provisions for credit losses in 2007 than over the previous several years. Until conditions in the housing and credit markets improve, it is likely we will continue to report significant non-performing assets, charge-offs, and provisions for credit losses.

Our non-performing loans increased $140 million in 2007, principally as a result of loans to several homebuilders who are in the process of liquidating the collateral pledged against our loans. We recorded provision for credit losses in 2007 of $50 million, principally as a result of these and other homebuilder loans.

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Current conditions in California and Florida indicate other homebuilders to which we have loans outstanding will likely have to reduce prices to sell the collateral or may have protracted inventory turnover periods. Because of these market conditions, some of these loans may become non-performing in the future. At year-end 2007, we had $480 million in outstanding loans to regional and local homebuilders in California and $119 million in Florida, of which $284 million in California and $36 million in Florida was secured by land and lots.

We do not originate or purchase sub-prime loans. At year-end 2007, we had only $1 million in mortgage warehouse loans ($25 million committed) with sub-prime loans pledged as collateral. Our obligations to fund additional advances under these commitments are subject to several conditions, including a requirement that the borrower has pre-sold the loans and our approval of the underlying collateral, the purchasers under the pre-sale agreements, and the seller of the warehouse loan itself. As a result of these limiting requirements and the current sub-prime market conditions, we do not expect to fund substantial additional advances under these commitments.

We are a participant in a loan facility to an entity that previously issued, serviced, and invested in credit-sensitive residential mortgage assets. We currently have $23 million remaining unpaid principal on our portion of the loan, and previously had over $50 million loaned to the entity. In 2007, the entity experienced significant liquidity challenges because the value of some of the entity’s collateral used to determine its allowable borrowings declined substantially as a result of the credit market disruptions. The entity sold a portion of the collateral securing the loan and paid down the loan with the proceeds. We, and the other lenders, agreed to modify the loan terms to provide for repayment of the loan through cash flows from payments received on the entity’s remaining assets, all of which are pledged as collateral on the loan. We expect loan repayment over the next several years. We believe we have adequately reserved for our probable loss on this loan. Our non-performing loans do not include this loan, because it is performing in accordance with the modified terms.

We recognized $3 million in 2006 and $4 million in 2005 in interest income as a result of payoffs received on loans on which we had ceased accruing interest.

At year-end 2007, we had $21 million recorded in other assets for the net carrying value of two cargo aircraft we lease to a commercial air carrier. We modified the leases in 2003 as a result of the lessee’s financial difficulties. The lessee continues to perform in accordance with the terms of the modified leases, and the lessee’s financial situation has improved. We anticipate the net carrying value of the aircraft will be $11 million at the end of the lease terms in 2009, which we believe will be the residual value of the aircraft.

Virtually all of our commercial real estate loans are collateralized and performing in accordance with contractual terms. Commercial real estate construction loans are generally designed with an interest capitalization period during construction and often up to a year following construction to allow the borrower to lease the property to tenants.

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The year-end allowance for loan losses by loan category was:

	2007					2006					2005					2004					2003
			Allowance					Allowance					Allowance					Allowance					Allowance
			as a					as a					as a					as a					as a
			% of					% of					% of					% of					% of
			Loan					Loan					Loan					Loan					Loan
	Allowance		Category			Allowance		Category			Allowance		Category			Allowance		Category			Allowance		Category
	(Dollars in millions)
Single-family mortgage	$	9		0.54	%	$	7		0.30	%	$	9		0.29	%	$	8		0.22	%	$	7		0.22	%
Single-family mortgage warehouse		6		0.86	%		2		0.25	%		1		0.13	%		1		0.17	%		1		0.26	%
Single-family construction		48		3.18	%		12		0.67	%		9		0.54	%		10		0.77	%		6		0.68	%
Multifamily and senior housing		6		0.39	%		4		0.31	%		11		0.75	%		15		1.03	%		28		1.58	%
Total residential housing		69		1.27	%		25		0.41	%		30		0.43	%		34		0.49	%		42		0.67	%
Commercial real estate		6		0.36	%		5		0.41	%		5		0.66	%		8		1.13	%		18		1.77	%
Commercial and business		15		1.12	%		8		0.79	%		7		0.83	%		7		0.94	%		8		1.37	%
Energy		6		0.41	%		4		0.36	%		3		0.40	%		3		0.42	%		2		0.36	%
Asset-based lending and leasing		—		—			—		—			8		2.03	%		9		2.10	%		9		1.80	%
Consumer and other		—		—			—		—			—		—			1		0.49	%		1		0.57	%
Not allocated		22		—			23		—			21		—			23		—			31		—
	$	118		1.17	%	$	65		0.67	%	$	74		0.75	%	$	85		0.88	%	$	111		1.21	%

Asset/Liability Management

Asset/liability management involves the evaluation, monitoring, and management of risks related to interest rates, liquidity, and funding. The Asset and Liability Committee, or ALCO, comprised principally of our senior treasury and executive officers, monitors our exposure to these risks and our policies and practices to minimize them. We have an Interest Rate Risk Policy that defines the acceptable levels of sensitivity of earnings and net market values to changes in interest rates and ALCO monitors compliance with those guidelines.

We are subject to interest rate risk to the extent interest-earning assets and interest-bearing liabilities repay or reprice at different times or in differing amounts or both. The maturity dates (and repricing dates for variable rate instruments) of our assets and liabilities do not coincide. Additionally, as discussed above, when many of our assets reprice their rates do not change by the same amount as broad-market indexes, such as United States Treasury rates or LIBOR, because of contractual lagging features. Also, our floating rate borrowings are typically based on LIBOR rates and many of our assets are based on 11th District Cost of Funds, United States Treasury, our own Prime rate quote, or other indexes.

The majority of our floating rate single-family mortgage loans and loans underlying our mortgage-backed securities are subject to caps on the amount the interest rate may increase over the lifetime of the loan. These caps result in interest rate risk because our funding sources rarely contain similar caps. At year-end 2007, our weighted average loan and mortgage-backed security portfolio rate for those assets subject to caps was more than 4% below the weighted average lifetime cap rate for those assets.

We manage our exposure to interest rate changes by considering the impact of both increases and decreases in interest rates. In general, we have positioned our balance sheet such that increases or decreases in rates have a similar effect. We do not attempt to position the balance sheet in a manner based upon anticipated rate movements in a particular direction. ALCO regularly reviews our exposure to interest rate changes and, when necessary, determines changes to our portfolio structure, our asset and deposit pricing, or both to adjust the sensitivity. We have occasionally used derivative financial instruments to manage our interest rate risk, and then only with respect to specific mortgage-backed security investments. However, our board of directors has approved entering into derivative contracts for risk management purposes, and we may choose to do so in the future.

We monitor our exposure to interest rate changes in a number of ways, including simulating the effects of potential changes in interest rates on our net portfolio value, our net interest income and our liquidity and cash flows. These simulations include hypothetical immediate rate changes, more slowly developing rate changes, different changes in long and short-term rates, and changes in rates across products and markets. In performing

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these simulations, we make many assumptions, including the prepayment behavior of our borrowers under different rate environments and the competitive market for deposit pricing. Where possible, we use assumptions that are based on historical statistical data, but in many cases there is insufficient data to determine those assumptions precisely. While we believe our assumptions to be reasonable, there can be no assurance that the assumptions used in our simulations will accurately reflect future events. As a result, our estimates of the impact of future rate changes may prove to be incorrect.

Please read Item 7A.  “Quantitative and Qualitative Disclosure About Market Risk” for further quantitative information about our sensitivity to interest rate changes.

Operational Risk Management

Operational risk is the possibility of loss from human error, systems failures, fraud, or inadequate internal controls and procedures. In providing banking services, we process cash, checks, wires, and other electronic funds transfer transactions, we obtain confidential customer information, and we recommend financial products to customers. These activities expose us to risks that we may incorrectly process those transactions, fail to comply with laws and regulations, or suffer reputation damage. We maintain and monitor controls over those processing activities. We maintain contingency plans and systems for operations support in the event of natural or other disasters.

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Liquidity, Capital Expenditures, and Contractual Obligations

Sources and Uses of Cash

	For the Year
	2007			2006			2005
	(In millions)
We received cash from:
Operations	$	144		$	172		$	177
Changes in loans held for sale and other		(14	)		245			98
From operations		130			417			275
Net repayments on loans and securities		—			736			—
Sale of asset-based operations		—			302			—
Net redemption of Federal Home Loan Bank stock		18			52			—
Increase in deposits and borrowings		728			—			1,626
Capital contribution from Temple-Inland		101			—			—
Sale of real estate projects to affiliate		14			—			—
Collection of mortgage servicing rights sale receivables		—			—			46
Total sources		991			1,507			1,947
We used cash to:
Pay dividends to Temple-Inland		(35	)		(135	)		(25	)
Fund decreases in deposits and borrowings		—			(1,389	)		—
Fund loans and securities, net of purchases and sales		(591	)		—			(1,756	)
Increase investment in Federal Home Loan Bank stock		—			—			(12	)
Redeem preferred stock issued by subsidiaries		(305	)		—			—
Fund defeasance of other borrowings and future interest on those borrowings		(107	)		—			—
Reinvest in the business through capital expenditures, acquisitions, and other		(48	)		(42	)		(73	)
Total uses		(1,086	)		(1,566	)		(1,866	)
Change in cash and cash equivalents	$	(95	)	$	(59	)	$	81

Our principal operating cash requirements are for interest, compensation, and taxes. Changes in loans held for sale are subject to the timing of the origination and subsequent sale of the loans and the level of refinancing activity.

In 2007, we used cash flow from operations to pay dividends to Temple-Inland and to invest in new branches and other capital expenditures. We also redeemed all of the preferred stock issued by subsidiaries with the proceeds from subordinated notes payable to trust. In 2006, we used cash flow from the sale of loans held for sale, principal payments on mortgage-backed securities, and the sale of our asset-based operations to reduce our borrowings.

The changes in deposits and our borrowings and the amounts invested in loans and securities generally move in tandem because we use deposits and borrowings to fund our investments. The amount of borrowing will decrease as opportunity to invest decreases and will increase as opportunity to invest increases. We anticipate commercial loan growth throughout 2008. However, we expect this growth will likely be offset by repayments of single-family mortgage loans and mortgage-backed securities.

Dividends we paid to Temple-Inland in 2007 were substantially less than our earnings because we chose to retain those earnings as regulatory capital in Guaranty Bank, principally to support our commercial loan growth. Dividends we paid in 2006 were substantially more than in 2005 because of lower requirements for

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regulatory capital as a result of the sale of our asset-based lending operations and the related reduction in loans.

We are expanding our banking center network by constructing new retail bank branches in key markets. In 2007, we spent $29 million to build new branches and refurnish existing branches. We have no significant commitments related to capital expenditures. In addition, we spent $7 million to acquire an insurance agency in 2007. We anticipate continuing to increase the number of our retail banking branches, but do not have any significant commitments to do so.

Our liquidity needs are associated with cash flow requirements of our deposit and loan customers, our other commitments (including borrowing costs and maturities) and our operating activities. We have a variety of liquidity sources including:

•  Operating cash flows;

•  New deposits;

•  Ability to borrow from FHLB; and

•  A portfolio of liquid assets including marketable mortgage-backed securities.

At year-end 2007, we had loans and securities aggregating $10.1 billion pledged as collateral against FHLB borrowings. Based upon this collateral, we had the ability to borrow an additional $1.3 billion from the FHLB. Additionally, we have other assets not pledged as collateral on FHLB borrowings at year-end 2007, which we could pledge as collateral with the FHLB or other lenders, providing an additional $1.7 billion of available liquidity.

Contractual Obligations

At year-end 2007 our contractual obligations consist of:

	Payments Due or Expiring by Period
			Less than		1-3		3-5		More than
	Total		1 year		years		years		5 years		Indeterminable
	(In millions)
Items on our balance sheet:
Transaction and savings deposit accounts	$	4,599	$	—	$	—	$	—	$	—	$	4,599
Certificates of deposit		4,776		4,290		396		88		2		—
Federal Home Loan Bank borrowings		5,743		5,309		309		125		—		—
Subordinated notes payable to trust		314		—		—		—		314		—
Items not on our balance sheet:
Contractual interest payments		784		121		95		65		503		—
Operating leases		47		9		16		13		9		—
Processing contracts		18		11		7		—		—		—
	$	16,281	$	9,740	$	823	$	291	$	828	$	4,599

Our transaction and savings deposit accounts are shown as indeterminable maturity. These accounts do not have a contractual maturity, but rather, are due on demand. Most of the certificates of deposit that mature in 2008 had initial maturities of one year or less and a high percentage of the depositors have historically renewed at maturity, although they have no contractual obligation to do so.

Contractual interest has been calculated using rates at year-end 2007. Many of these obligations have variable interest rates and actual payments will differ from the amounts shown above. Payments on certificates of deposit are based on contractual maturity dates. These funds may be withdrawn prior to maturity by the customer, though in general we charge the customer a penalty for early withdrawal.

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Operating lease commitments generally represent real property we rent for branch offices, corporate offices, and operations facilities. Payments presented represent the minimum lease payments and exclude related costs such as utilities and property taxes.

Processing contracts are principally data processing and communications contracts and represent the minimum obligations under the contracts. We have excluded additional volume-based payments that are unguaranteed.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into off-balance sheet arrangements, such as commitments to extend credit for loans, leases, and letters of credit. Commitments to lend require a customer to be in compliance with all conditions in the contract. These commitments generally have fixed expiration dates or termination clauses and may require payment of a fee. Since many commercial and business loan commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Additionally, we generally require collateral upon funding of loan commitments, and once funded, they generally increase our borrowing capacity (referred as “pledgeable” below). These commitments normally include provisions allowing us to exit the commitment under certain circumstances. At year-end 2007, our off-balance sheet unfunded credit arrangements consisted of:

	Expiring by Year
	Total		2008		2009-10		2011-12		Thereafter
	(In millions)
Single-family mortgage loans	$	87	$	87	$	—	$	—	$	—
Unused lines of credit		1,959		226		835		814		84
Unfunded portion of credit commitments — pledgeable		3,866		1,510		1,942		389		25
Unfunded portion of credit commitments — non-pledgeable		621		449		154		6		12
Commitments to originate loans — pledgeable		337		19		238		47		33
Commitments to originate loans — non-pledgeable		417		277		73		50		17
Letters of credit		359		119		107		133		—
	$	7,646	$	2,687	$	3,349	$	1,439	$	171

Capital Management

At year-end 2007, Guaranty Bank met or exceeded all applicable regulatory capital requirements. Guaranty Bank’s total risk-based capital ratio at year-end 2007 was 10.54%, and its Tier I leverage ratio was 7.74%. We expect to be able to maintain Guaranty Bank’s capital at a level that exceeds the minimum required for designation as “well-capitalized” under the capital adequacy regulations of the OTS. The federal banking agencies have published elective changes to capital adequacy guidelines and risk-weightings. We have not completed an analysis of these possible changes, but we do not anticipate they will result in a change in Guaranty Bank’s capital categorization.

In 2007 and 2006, we issued a total of $314 million in subordinated notes payable to trust to fund our redemption of preferred stock issued by subsidiaries. In 2007, we redeemed all of the preferred stock issued by subsidiaries. The preferred stock issued by subsidiaries qualified as regulatory capital for Guaranty Bank and, as approved by the OTS, we include amounts raised through the subordinated notes payable to trust in Guaranty Bank’s regulatory capital.

Historically, we returned excess capital to Temple-Inland. Although we believe we are appropriately capitalized for our current business activities, our ability to raise regulatory capital may not be as flexible in the future as it was in the past. As a result, we may retain more equity during periods of slower loan growth. This could decrease our return on equity. Our ability to pay dividends, which is limited by regulatory capital requirements, has historically depended to a great extent on our after-tax earnings and our asset growth. In the

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future, we may have the ability to raise additional capital to support our asset growth but there is no assurance that we will be able to do so.

Critical Accounting Policies and Estimates

In preparing our financial statements, we follow generally accepted accounting principles, which in many cases require us to make assumptions, estimates, and judgments that affect the amounts reported. Our significant accounting policies are included in “Note 1 to the Consolidated Financial Statements.” Many of these principles are relatively straightforward. There are, however, a few accounting policies that are critical because they are important in determining our financial condition and results and involve significant assumptions and estimates. They include allowance for credit losses, valuation of mortgage-backed securities, and assessment of goodwill and other intangibles for impairment. We make complex and subjective judgments in applying these policies, many of which include a high degree of uncertainty. As the uncertainty increases, the level of precision decreases, meaning actual results can, and probably will be, different from those currently estimated. We base our assumptions, estimates, and judgments on a combination of historical experiences and other factors that we believe are reasonable. The following is a discussion of these critical accounting policies and significant estimates related to these policies.

Allowance for Credit Losses

The allowance for credit losses consists of allowances for loan losses and for commitment-related losses.

In analyzing the adequacy of the allowance for loan losses, we consider the following factors: loan grades, the result of internal credit reviews, concentrations by loan type, and historical loss experience adjusted for changes in trends and conditions. Other considerations we use in our analysis include volumes and trends of delinquencies, levels of nonaccrual loans, repossessions, and bankruptcies, trends in internally or regulator criticized and classified loans, and anticipated losses on loans secured by real estate. In addition, we consider new credit products and policies, current economic conditions, concentrations of credit risk, and the experience and abilities of lending personnel.

In analyzing the adequacy of our allowance for commitment-related credits losses, we consider the amount of our commitments to fund loans and the amount of our direct credit substitutes, such as our indemnification of previously sold loans. We assess the risk of loss on these commitments based on the type of loan and any collateral, the term of the commitment, and economic conditions.

Valuation of Mortgage-Backed Securities

We determine the values of our private issuer mortgage-backed securities using financial models. We use inputs and assumptions we believe market participants would use in the current environment. Many of our inputs are not directly observable and we derive those from sample price quotations for similar securities and dealer research publications.

When we have unrealized losses on mortgage-backed securities, we consider whether the losses are other-than-temporary. In making our determination, we consider whether the cash flows we project on the securities will fully recover all contractual amounts due. We also consider the amount of time a security has been in an unrealized loss position, and whether we intend hold the security until the value recovers to amortized cost, which may be until repayment.

Assessment of Goodwill and Other Intangibles for Impairment

Assessment of goodwill and other intangible assets for impairment requires us to make subjective judgments about how the acquired businesses and assets will perform in the future using valuation methods including discounted cash flow analysis. Cash flow estimates may extend beyond ten years and, by their nature, are difficult to determine over an extended timeframe. Events and factors that may significantly affect the estimates include, among others, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures, technology, changes in discount rates and specific industry and market

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conditions and our intentions. In determining the reasonableness of cash flow estimates, we consider historical performance of the underlying assets or similar assets.

We also often consider other information to validate the reasonableness of our valuations, including public market comparables and multiples from recent mergers and acquisitions of similar businesses. We may adjust these multiples to consider competitive differences including size, operating leverage, and other factors.

Recent Accounting Standards

Please see “Note 1 to the Consolidated Financial Statements” for information about a new accounting standard relating to income taxes we adopted in 2007 and accounting standards relating to fair value measurements we will adopt in 2008.

Effects Of Inflation

Inflation has had minimal effect on our operating results the past three years because substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our results than general levels of inflation.

Litigation Matters

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believe we have established adequate reserves for any probable losses. We do not believe the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations, or cash flow. It is possible, however, that charges related to these matters could be significant to results of operations or cash flow in any one accounting period.

In 2007, a class was certified in an action in California related to our former mortgage banking operations. The action alleged violations of the state’s laws related to the time a mortgage company must file a lien release following repayment of a mortgage loan. The court subsequently dismissed the case, though the plaintiff has appealed the dismissal. The matter is pending action by the appeals court. We have established reserves we believe are adequate for this matter, and we do not anticipate the outcome will have a material adverse effect on our financial position or long-term results of operations or cash flows.

As a result of our participation in the Visa USA (“Visa”) network — principally related to ATM and debit cards — we own 0.013% of Visa for which we have no carrying value. Visa has filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock. In preparation for the offering, the Visa bylaws were modified in fourth quarter 2007 to provide for indemnification of Visa by its members for any ultimate losses related to certain existing litigation, described further in Visa’s registration statement. At the offering date, Visa members will place their ownership interest in escrow for a period of three years, and it is expected that any indemnification obligations will be funded by the escrowed ownership interest. We are not a named defendant in any of Visa’s litigation matters, and have no access to any non-public information about the matters. We have accrued our estimate of the fair value of our indemnification obligation, which we believe is insignificant. One of the matters settled prior to year-end 2007 and Visa had announced its estimate of the probable loss for another. However, several of the litigation matters are only in the very early stages of discovery, and it is impossible to determine the probable loss on those matters at this time. Though we expect the ultimate value of our membership interest to exceed our indemnification obligations, further accruals may be necessary depending on how the litigation matters proceed.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The following table illustrates the estimated effect on our pre-tax income of hypothetical immediate, parallel, and sustained shifts in interest rates for the next 12 months at year-end 2007, with comparative year-

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end 2006 information. This estimate considers the effect of changing prepayment speeds, repricing characteristics, and expected average balances over the next 12 months.

	Decrease in
	Income Before
	Taxes
Change in	At Year-End
Interest Rates	2007			2006
	(In millions)
+1%	$	(6	)	$	(17	)
−1%		(12	)		(18	)

The change in our interest rate sensitivity from year-end 2006 is principally due to a reduction in our mortgage assets, growth in our commercial loans (which generally carry interest rates which adjust frequently), and increased responsiveness to market rate changes of our deposit costs (with a change in deposit mix towards a money market account product with an interest rate indexed to short-term market rates).

Reporting the effect of immediate and parallel rate changes is common industry practice; however, such changes are unlikely to occur. More typically, rates increase gradually, change in different amounts across the term structure and change differently across products.

While the analysis strives to model accurately the hypothetical relationships being tested, there are numerous assumptions and estimates associated with these simulations which may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Assumptions about interest rate changes, balance sheet growth, depositor behavior, or prepayment rates are by nature highly subjective, involve uncertainty and, therefore, are only estimates.

Foreign Currency Risk

We have no exposure to foreign currency fluctuations.

Commodity Price Risk

We have no exposure to commodity price fluctuations.

Item 8.   Financial Statements

	Page
Management’s Annual Report on Internal Control over Financial Reporting		54
Report of Independent Registered Public Accounting Firm		55
Report of Independent Registered Public Accounting Firm		56
Consolidated Balance Sheets		57
Consolidated Statements of Income		58
Consolidated Statements of Cash Flow		59
Consolidated Statements of Stockholders’ Equity		60
Notes to Consolidated Financial Statements		61

53

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Guaranty Financial Group Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed our internal control over financial reporting to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.

Management is required by paragraph (c) of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, to assess the effectiveness of our internal control over financial reporting as of each year-end. In making this assessment, management used the Internal Control — Integrated Framework issued in July 1994 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management conducted the required assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007. Based upon this assessment, management believes that our internal control over financial reporting is effective as of December 31, 2007.

Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Form 10-K, has audited our internal control over financial reporting. Their report follows this report of management.

54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Guaranty Financial Group Inc.

We have audited Guaranty Financial Group Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Guaranty Financial Group Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of Guaranty Financial Group Inc.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Guaranty Financial Group Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Guaranty Financial Group Inc. as of December 31, 2007 and December 31, 2006 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007 and our report dated February 29, 2008 expressed an unqualified opinion thereon.

/s/  ERNST & YOUNG LLP

Austin, Texas

February 29, 2008

55

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Guaranty Financial Group Inc.

We have audited the accompanying consolidated balance sheets of Guaranty Financial Group Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of Guaranty Financial Group Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Guaranty Financial Group Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 2007 Guaranty Financial Group Inc. changed its method of accounting for income taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Guaranty Financial Group Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2008 expressed an unqualified opinion thereon.

/s/  ERNST & YOUNG LLP

Austin, Texas

February 29, 2008

56

GUARANTY FINANCIAL GROUP INC.

CONSOLIDATED BALANCE SHEETS

	At Year-End
	2007			2006
	(In millions)
ASSETS
Cash and cash equivalents	$	277		$	372
Restricted cash		107			—
Loans held for sale		16			23
Loans, net of allowance for losses of $118 in 2007 and $65 in 2006		9,928			9,617
Securities available-for-sale		1,882			529
Securities held-to-maturity		3,642			4,853
Investment in Federal Home Loan Bank stock		256			262
Property and equipment, net		233			214
Accounts, notes, and accrued interest receivable		97			104
Goodwill		144			141
Other intangible assets		26			26
Deferred income taxes		72			27
Other assets		116			84
TOTAL ASSETS	$	16,796		$	16,252
LIABILITIES AND EQUITY
Deposits	$	9,375		$	9,486
Federal Home Loan Bank borrowings		5,743			5,076
Other liabilities		125			127
Subordinated debentures and other borrowings		101			101
Subordinated notes payable to trust		314			142
Preferred stock issued by subsidiaries		—			305
TOTAL LIABILITIES		15,658			15,237
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share, 25 million shares authorized, none issued		—			—
Common stock, par value $1 per share, 200 million shares authorized, 35.4 million shares issued and outstanding		35			35
Additional paid-in capital		902			786
Retained earnings		236			193
Accumulated other comprehensive income (loss), net		(35	)		1
TOTAL STOCKHOLDERS’ EQUITY		1,138			1,015
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	16,796		$	16,252

Please read the notes to the consolidated financial statements.

57

GUARANTY FINANCIAL GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME

	For the Year
	2007			2006			2005
	(In millions, except per share)
INTEREST INCOME
Loans and loans held for sale	$	698		$	695		$	589
Securities available-for-sale		62			32			41
Securities held-to-maturity		220			249			155
Other earning assets		16			21			15
Total interest income		996			997			800
INTEREST EXPENSE
Deposits		(341	)		(283	)		(189	)
Borrowed funds		(264	)		(302	)		(215	)
Total interest expense		(605	)		(585	)		(404	)
NET INTEREST INCOME		391			412			396
Provision for credit losses		(50	)		(1	)		(10	)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		341			411			386
NONINTEREST INCOME
Insurance commissions and fees		68			69			65
Service charges on deposits		53			50			44
Operating lease income		7			7			6
Loan origination and sale of loans		—			2			22
Other		29			40			43
Total noninterest income		157			168			180
NONINTEREST EXPENSE
Compensation and benefits		(181	)		(184	)		(182	)
Occupancy		(28	)		(28	)		(27	)
Information systems and technology		(14	)		(14	)		(16	)
Charges related to asset impairments and severance		—			(11	)		(5	)
Other		(149	)		(151	)		(154	)
Total noninterest expense		(372	)		(388	)		(384	)
INCOME BEFORE TAXES		126			191			182
Income tax expense		(48	)		(70	)		(66	)
NET INCOME	$	78		$	121		$	116
EARNINGS PER SHARE
Basic and diluted	$	2.20			n/a			n/a
Diluted with share awards (proforma, unaudited)	$	2.16			n/a			n/a
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic and diluted		35.4			n/a			n/a
Diluted with share awards (proforma, unaudited)		36.1			n/a			n/a

Please read the notes to the consolidated financial statements.

58

GUARANTY FINANCIAL GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

	For the Year
	2007			2006			2005
	(In millions)
CASH PROVIDED BY OPERATIONS
Net income	$	78		$	121		$	116
Adjustments:
Depreciation and amortization		18			16			20
Depreciation of assets leased to others		6			6			6
Amortization of core deposit and other intangible assets		5			6			5
Amortization and accretion of financial instrument discounts and premiums and deferred loan fees and origination costs, net		14			24			13
Provision for credit losses		50			1			10
Deferred income taxes		(27	)		(2	)		7
Changes in:
Loans held for sale:
Originations		(76	)		(157	)		(2,379	)
Sales and collections		83			414			2,595
Collections on loans serviced for others, net		—			—			(122	)
Other		(21	)		(12	)		4
		130			417			275
CASH PROVIDED BY (USED FOR) INVESTING
Securities available-for-sale:
Purchases		(1,548	)		(2	)		(3	)
Principal payments and maturities		135			126			183
Securities held-to-maturity:
Purchases		(142	)		(833	)		(2,966	)
Principal payments and maturities		1,331			1,510			1,339
Federal Home Loan Bank stock:
Purchases		(51	)		—			(12	)
Redemptions		69			52			—
Loans originated or acquired, net of collections		(401	)		(65	)		(310	)
Collection of mortgage servicing rights sale receivables		—			—			46
Sales of loans		34			302			1
Sale of real estate projects to former affiliate		14			—			—
Acquisitions, net of cash acquired		(7	)		—			(21	)
Capital expenditures		(44	)		(43	)		(41	)
Other		3			(3	)		10
		(607	)		1,044			(1,774	)
CASH PROVIDED BY (USED FOR) FINANCING
Deposits, net		(111	)		285			238
Repurchase agreements and short-term borrowings, net		1,177			(1,196	)		2,126
Long-term Federal Home Loan Bank and other borrowings:
Additions		445			—			2
Payments		(955	)		(620	)		(740	)
Issuance of subordinated notes payable to trust		172			142			—
Dividends paid to Temple-Inland		(35	)		(135	)		(25	)
Capital contribution from Temple-Inland		101			—			—
Redemption of preferred stock issued by subsidiaries		(305	)		—			—
Restricted cash deposited for future defeasance of other borrowings and related future interest		(107	)		—			—
Other		—			4			(21	)
		382			(1,520	)		1,580
Net (decrease) increase in cash and cash equivalents		(95	)		(59	)		81
Cash and cash equivalents at beginning of year		372			431			350
Cash and cash equivalents at year-end	$	277		$	372		$	431
Interest paid	$	610		$	584		$	389

Please read the notes to the consolidated financial statements.

59

GUARANTY FINANCIAL GROUP INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

									Accumulated
			Additional						Other			Total
	Common		Paid-in			Retained			Comprehensive			Stockholders’
	Stock		Capital			Earnings			Income/(Loss), net			Equity
	(In millions)
Balance at year-end 2004	$	35	$	771		$	116		$	5		$	927
Comprehensive income, net of tax:
Net income		—		—			116			—			116
Net unrealized gains (losses) on available-for-sale securities		—		—			—			(3	)		(3	)
Comprehensive income for the year 2005													113
Distribution of non-cash assets to Temple-Inland		—		(6	)		—			—			(6	)
Contribution of allocated expenses from Temple-Inland		—		8			—			—			8
Dividends paid to Temple-Inland		—		—			(25	)		—			(25	)
Balance at year-end 2005	$	35	$	773		$	207		$	2		$	1,017
Comprehensive income, net of tax:
Net income		—		—			121			—			121
Net unrealized gains (losses) on available-for-sale securities		—		—			—			(1	)		(1	)
Comprehensive income for the year 2006													120
Contribution of non-cash assets from Temple-Inland		—		6			—			—			6
Contribution of allocated expenses from Temple-Inland		—		7			—			—			7
Dividends paid to Temple-Inland		—		—			(135	)		—			(135	)
Balance at year-end 2006	$	35	$	786		$	193		$	1		$	1,015
Comprehensive income, net of tax:
Net income		—		—			78			—			78
Net unrealized gains (losses) on available-for-sale securities		—		—			—			(36	)		(36	)
Comprehensive income for the year 2007													42
Cash contribution from Temple-Inland		—		101			—			—			101
Contribution of non-cash assets from Temple-Inland		—		10			—			—			10
Contribution of allocated expenses from Temple-Inland		—		5			—			—			5
Dividends paid to Temple-Inland		—		—			(35	)		—			(35	)
Balance at year-end 2007	$	35	$	902		$	236		$	(35	)	$	1,138

Please read the notes to the consolidated financial statements

60

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

Background

Guaranty Financial Group Inc. (“Guaranty,” “we,” or “our” in these financial statements) is a grandfathered unitary savings and loan holding company that owns several subsidiaries, the most significant of which is Guaranty Bank, a federally-chartered savings bank. Guaranty Bank conducts consumer and commercial banking activities through banking centers in Texas and California and lends in diverse geographic markets. Our Texas banking centers are concentrated in the metropolitan areas of Austin, Dallas/Fort Worth, Houston and San Antonio, and our California banking centers are concentrated in the central valley and southern areas of the state. Guaranty Bank also conducts insurance agency operations through its subsidiary, Guaranty Insurance Services, Inc.

We were formerly known as Temple-Inland Financial Services Inc. and, prior to December 28, 2007, were a wholly-owned subsidiary of Temple-Inland Inc. (“Temple-Inland”). Our operations comprised all of the financial services operations of Temple-Inland. On December 28, 2007, Temple-Inland distributed all of our common stock to its shareholders.

Basis of Presentation

Our consolidated financial statements include the accounts of Guaranty Financial Group Inc. and its subsidiaries, the majority of which are wholly-owned. We eliminate all material intercompany accounts and transactions. Our year-end is December 31.

Guaranty Bank is our predominant financial services subsidiary, and its assets and operations, along with those of its insurance agency subsidiaries, are subject to regulatory rules and restrictions, including restrictions on the payment of dividends to us. As a result, all of our consolidated assets are not available to satisfy all of our consolidated liabilities.

We prepare our financial statements in accordance with generally accepted accounting principles (“GAAP”), which require us to make estimates and assumptions about future events. Actual results can, and probably will, differ from those we currently estimate. Examples of significant estimates include our allowances for credit losses, valuation of mortgage-backed securities, and our assessments of goodwill and other intangible assets for impairment.

We have presented historical shareholders’ equity as if Temple-Inland’s distribution of our common stock occurred at the beginning of the earliest period presented, using the actual number of shares distributed on December 28, 2007.

Our consolidated financial statements include expenses incurred by Temple-Inland on our behalf such as benefits administration, payroll, real estate services, technology, and, beginning in 2006, share-based compensation. The methodologies used to allocate those expenses were included in agreements between Guaranty and Temple-Inland and were based on actual expenses incurred, including salaries and benefits, or estimates of actual usage. Our consolidated financial statements also include expenses incurred by Temple-Inland not directly attributable to us such as costs associated with investor relations, financial reporting, and executive officers, and for 2005, share-based compensation. The methodologies Temple-Inland used to allocate these expenses were based on Temple-Inland’s historical net investment in us relative to its other segments, revenues, operating profits, employee count, or similar drivers. We report all costs allocated to us by Temple-Inland in noninterest expense, and those costs totaled $35 million in 2007, $38 million in 2006, and $29 million in 2005. We believe the assumptions and methodologies used to derive these allocations are reasonable; however, they may not necessarily be indicative of what our expenses would have been had we been a separate stand-alone public company in the past or what our expenses might be in the future. We have no practical way

61

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of determining what expenses we would have incurred if we would have been a separate stand-alone public company in the past.

Cash and Cash Equivalents

Cash and cash equivalents include cash and other short-term instruments with original maturities of three months or less. We are required by banking regulations to hold a minimum amount of cash based on deposits. At year-end 2007, we were required to hold $39 million in cash.

Please read Note 8 for additional information regarding restricted cash.

Capitalized Software

We capitalize purchased software costs as well as the direct internal and external costs associated with software we develop for our own use. We amortize these capitalized costs using the straight-line method over estimated useful lives ranging from three to five years. The carrying value of capitalized software was $13 million at year-end 2007 and $5 million at year-end 2006 and is included in other assets. The amortization of these capitalized costs was $4 million in 2007, $3 million in 2006, and $6 million in 2005 and is included in other noninterest expense.

Derivatives

We use derivative instruments to mitigate our exposure to risks, principally related to our mortgage origination activities. We do not enter into derivatives for trading purposes.

We enter into interest rate lock commitments with mortgage borrowers for loans we intend to keep and loans we intend to sell. We record interest rate lock commitments for loans we intend to sell as derivatives at fair value in the balance sheet. At inception, we value these interest rate lock commitments at zero. Subsequent value estimates are made using quoted market prices for equivalent rate loans, adjusted for the percentage likelihood the interest rate lock commitment will ultimately become a funded mortgage loan. At times, we enter into forward commitments to sell loans and mortgage-backed securities to hedge the value of the interest rate lock commitments and loans held for sale. We designate forward sale commitments that hedge mortgage loans held for sale as fair value hedges if we can demonstrate the sale commitment is highly effective at offsetting changes in value of the mortgage loans. Please read Pending Accounting Pronouncements for information about a new standard that will likely change our policy for mortgage loans held for sale beginning in 2008.

Fair Value of Financial Instruments

In the absence of quoted market prices, we estimate the fair value of financial instruments. Our estimates are affected by the assumptions we make, including the discount rate and estimates of the amount and timing of future cash flows.

Foreclosed Assets

We carry foreclosed assets at the lower of the related loan balance or fair value of the foreclosed asset, less estimated selling costs. If the fair value is less than the loan balance at the time of foreclosure, we charge the difference to the allowance for loan losses. Subsequent to foreclosure, we evaluate properties for impairment, recognize any impairment and reduce the carrying value of the properties. The amount we ultimately recover from foreclosed assets may differ from our carrying value because of future market value changes or because of changes in our strategy for sale or development of the property. We record any differences as gains or losses upon ultimate liquidation of the property. We include foreclosed assets in other assets, and we include recognized impairments in other noninterest expense.

62

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Goodwill and Other Intangible Assets

We do not amortize goodwill and other indefinite-lived intangible assets, such as our trademark. Instead, we measure the assets for impairment based on estimated values at least annually or more frequently if impairment indicators exist. We perform the annual impairment assessment as of the beginning of the fourth quarter of each year.

We have core deposit intangibles and other intangible assets (principally insurance agency customer relationships) with finite lives that we amortize using the straight-line method over their estimated useful lives of five to ten years.

Income Taxes

Through 2007, we have been included in Temple-Inland’s consolidated federal income tax return. We have also been included in Temple-Inland’s tax returns for a number of states, including California and, for 2007, Texas. We have computed our income tax expense for financial statement purposes as if we filed separate tax returns. Beginning in 2008, we will be a separate consolidated tax group for all federal income tax and state tax purposes. We record deferred income taxes using current tax rates for temporary differences between the financial accounting carrying value of assets and liabilities and their tax accounting carrying values. We only recognize tax positions we believe are probable of being sustained, which we determine based on tax laws, tax elections, commonly accepted tax positions, and management estimates. When we have taken tax positions that we believe are not probable of being sustained, we record them as other liabilities. We include any tax penalties and related interest in income tax expense.

Loans

We carry loans at unpaid principal balances, net of deferred fees and origination costs and any discounts or premiums on purchased loans. We recognize interest on loans as earned. We stop accruing interest when we have substantial uncertainty about our ability to collect all contractual principal and interest or when payment has not been received for ninety days or more, unless the loan is both well secured and in the process of collection. When we stop accruing interest, we reverse all uncollected interest previously recognized. Thereafter, we accrue interest income only if, and when, collections are anticipated to be sufficient to repay both principal and interest. We recognize deferred fees and costs, as well as any purchase premiums and discounts, as yield adjustments using the interest method on amortizing loans and the straight-line method for revolving credit arrangements. For pools of homogeneous loans that we can reasonably estimate prepayments, we determine the constant effective yield using estimated prepayments and adjust for differences between estimated and actual prepayments when they occur. We recognize any unamortized amounts on non-homogeneous loans if a loan is prepaid or sold. We include yield adjustments and recognition of unamortized amounts in interest income.

Allowance for Loan Losses

The allowance for loan losses represents our estimate of probable loan losses as of the balance sheet date. Our periodic evaluation of the adequacy of the allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that we believe have affected the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

We regularly assess the credit quality of our loans by assigning judgmental grades to each loan. Single-family mortgage loans are graded principally based on payment status, while larger non-homogeneous commercial loans are graded based on various factors including the borrower’s financial strength and payment history, the financial stability of any guarantors and, for secured loans, the realizable value of any collateral. Commercial loans are graded at least annually and upon identification of any significant new information

63

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

regarding a loan. Loans for which borrower payment performance, collateral uncertainties or other factors indicate the potential for other than full repayment are graded in categories representing higher risk.

We estimate probable losses on loans specifically evaluated for impairment (generally identified through our risk rating process) by comparing the carrying amount of the loan to the loan’s observable market price, estimated present value of total expected future cash flows discounted at the loan’s effective rate, or the fair value of the collateral if the loan is collateral dependent.

We estimate unidentified probable losses for pools of loans with similar risk characteristics, such as product type, market, aging, and collateral based on historic trends in delinquencies, charge-offs and recoveries, and factors relevant to collateral values. Our allowance for loan losses on pools of loans is based on estimated percentages of losses that have been incurred in these pools. These estimated percentages are based on historical charge-off rates, adjusted for current market and environmental factors that we believe are not reflected in historical data. We evaluate these estimated percentages annually and more frequently when portfolio characteristics change significantly.

We also estimate unidentified probable losses based on our assessment of general economic conditions and specific economic factors in individual markets. We also consider other risk factors that may not be reflected in the information used to determine the other components of our allowance for loan losses. These factors include inherent delays in obtaining information regarding a borrower’s financial condition or changes in their unique business conditions; the subjective nature of individual loan evaluations, collateral assessments, and the interpretation of economic trends; and the uncertainty of assumptions used to establish allowances for homogeneous groups of loans.

When available information confirms that a portion or all of a specific loan is uncollectible, we charge the amount against the allowance for loan losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not evidenced the ability or intent to bring the loan current; we have no recourse to the borrower, or if we do, the borrower has insufficient assets to pay the debt; or the fair value of the loan collateral is significantly below the current loan balance and there is little or no near-term prospect for improvement.

Loans Held for Sale

Loans held for sale consist primarily of single-family residential loans that we expect to sell. We carry loans held for sale at the lower of aggregate cost or fair value. We include changes in fair value and realized gains and losses in loan origination and sale of loans. If we have designated a loan held for sale as the hedged item under an effective derivative hedge, we increase or decrease its carrying amount for changes in its fair value after the date of hedge designation.

Other Revenue Recognition

We recognize insurance commissions as of the effective date of the policy or the date the customer is billed, whichever is later. We maintain allowances for commission adjustments based on estimated cancellations. These allowances were less than $1 million at year-end 2007.

Property and Equipment

We carry property and equipment at cost, less accumulated depreciation and amortization computed principally using the straight-line method over the estimated useful lives of the assets.

64

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Securities

We determine the appropriate classification of securities at the time of purchase and confirm the designation of these securities as of each balance sheet date. We classify securities as held-to-maturity and carry them at amortized cost when we have both the intent and ability to hold the securities to maturity. Otherwise, we classify securities as available-for-sale and carry them at fair value and include any unrealized gains and losses, net of tax, in accumulated other comprehensive income until realized. We consider any unrealized losses for which we do not expect the security value to recover during our anticipated holding period (in many cases through repayment) to be other-than-temporary. We expense any other-than-temporary losses and reduce the carrying value of the security.

We recognize interest on securities as earned. We recognize premiums and discounts as yield adjustments using the interest method. We determine the constant effective yield for mortgage-backed securities using estimated cash flows on the securities, which incorporate estimates of prepayments and credit losses on the underlying loans and the security cash flow structure. We adjust for differences between estimated and actual prepayments when they occur. We include these yield adjustments in interest income. We recognize gains or losses on securities sold at the trade date based on the specific-identification method and include any gains and losses in other noninterest income.

Securities Sold Under Repurchase Agreements

At times, we enter into agreements under which we sell securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, we transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates us to repurchase the assets. As a result, we account for securities sold under repurchase agreements as financing arrangements and reflect the obligation to repurchase the securities as a liability while continuing to include the securities as assets.

Share-Based Compensation

We include share-based compensation expense in compensation and benefits expense. Through 2007, we participated in Temple-Inland’s share-based compensation plans, and as a result, certain of our employees received share-based compensation awards under those plans. Temple-Inland allocated to us the expense it recognized on those awards as follows:

•  Beginning January 2006, Temple-Inland adopted the modified prospective application method contained in Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised December 2004), Share-Based Payment (“SFAS 123(R)”), to account for share-based payments. As a result, Temple-Inland applied this pronouncement to new awards or modifications of existing awards in 2006. Prior to adopting SFAS 123(R), Temple-Inland had been expensing, over the service period, the fair value of share-based compensation awards granted, modified, or settled in 2003 through 2005 using the prospective transition method of accounting contained in SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123.

•  Prior to 2003, Temple-Inland used the intrinsic value method in accounting for stock options. As a result, Temple-Inland did not allocate to us share-based compensation expense related to stock options granted prior to 2003.

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The following table illustrates the effect the fair value method would have had on our net income had we applied it to the options granted to our employees prior to 2003.

	For the Year
	2005
	(In millions)
Net income, as reported	$	116
Add: Share-based compensation expense, net of related tax effects, included in the determination of reported net income		2
Deduct: Total share-based compensation expense, net of related tax effects, determined under the fair value based method for all awards		(3	)
Pro forma net income	$	115

Please read Note 15 for additional information about share-based compensation.

Transfers of Financial Assets

At times, we sell loans to third parties or through the delivery into pools of mortgage loans that are being securitized into a mortgage-backed security. We recognize a gain or loss when we no longer control the loans, and we remove the loans from the balance sheet. We include the gain or loss in loan origination and sales of loans. When we sell loans, we sell the loans and related servicing rights at the same time.

New Accounting Pronouncement

Beginning January 2007, we adopted Financial Accounting Standards Board’s Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). This interpretation clarifies the accounting for and disclosure of uncertainties associated with certain aspects of measurement and recognition of income taxes. The adoption of FIN 48 did not result in any adjustments to our financial statements. At the beginning of 2007 and at year-end 2007, we had $2 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized.

Pending Accounting Pronouncements

SFAS No. 157, Fair Value Measures — This new standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to fair value measurements already required or permitted and is effective for us beginning January 1, 2008. We are currently assessing the effect SFAS No. 157 will have on our financial statements, but anticipate it will only result in additional disclosures regarding estimates we make in determining fair value for some financial instruments, including mortgage-backed securities and interest rate lock commitments.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — This new standard permits an entity to elect fair value as the initial and subsequent measurement method for many financial assets and liabilities. Subsequent changes in the fair value would be recognized in earnings as they occur. Entities electing the fair value option are required to disclose the fair value of those assets and liabilities on the balance sheet or in the notes to the financial statements. SFAS No. 159 is effective for us beginning January 1, 2008. We are assessing whether we will elect to use the fair value option for any financial instruments acquired in the future; currently we expect to do so only for mortgage loans held for sale.

SFAS No. 141 (revised 2007), Business Combinations — This new standard retains the acquisition (purchase) method of accounting of SFAS No. 141, establishes the acquisition date as the date the acquiror achieves control, and requires assets acquired and liabilities assumed be measured at their fair values at that date. One implication of SFAS No. 141 (revised 2007) to financial institutions is that historical allowance for

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loan losses of the acquired entity will not be recorded by the acquiror; rather, the acquiror will record the loans at fair value, which will be reduced by the fair value of the credit risk inherent in those loans. SFAS No. 141 (revised 2007) is effective for us beginning January 1, 2009.

Note 2 — Acquisitions and Intangible Assets

In 2007, we acquired an insurance agency for $7 million cash, of which we recorded $3 million in goodwill and $4 million in finite-lived intangibles. In 2005, we acquired an insurance agency for $18 million cash and potential earn-out payments of $8 million, and recorded $13 million in goodwill and $10 million in finite-lived intangible assets. Through year-end 2007, we had paid $3 million in earn-out payments under the purchase agreement with a corresponding increase in goodwill.

We allocated the purchase price of these acquisitions to the assets acquired and liabilities assumed based on our estimates of their fair values at the date of the acquisitions. We included the operating results of the acquisitions in our financial statements from the acquisition dates. Unaudited pro forma results of operations, assuming the acquisitions occurred at the beginning of the applicable year, would not have differed significantly from those reported.

The carrying value of our indefinite-lived intangible asset, a trademark, was $6 million at year-end 2007 and 2006. The net carrying value of our finite-lived intangibles, principally core deposit and customer relationships, was $20 million at year-end 2007 and 2006. The amortization of finite-lived intangibles was $5 million in 2007, 2006, and 2005. We estimate amortization for the next five years will be as follows (in millions): 2008 — $4; 2009 — $3; 2010 — $3; 2011 — $2; and 2012 — $2.

Note 3 — Cash and Cash Equivalents

Cash and cash equivalents consist of:

	At Year-End
	2007		2006
	(In millions)
Cash and due from banks	$	157	$	188
Interest-bearing deposits with banks		35		14
Federal funds sold		85		170
	$	277	$	372

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Note 4 — Loans

Loans consist of:

	At Year-End
	2007			2006
	(In millions)
Single-family mortgage	$	1,672		$	2,323
Single-family mortgage warehouse		695			795
Single-family construction		1,510			1,782
Multifamily and senior housing		1,541			1,270
Total residential housing		5,418			6,170
Commercial real estate		1,674			1,227
Commercial and business		1,340			1,012
Energy		1,470			1,117
Consumer and other		144			156
Total loans		10,046			9,682
Less allowance for loan losses		(118	)		(65	)
Loans, net	$	9,928		$	9,617

Single-family mortgages are made to homeowners and are secured by first liens on real estate. Our single-family mortgage loans include $502 million at year-end 2007 and $677 million at year-end 2006 of adjustable-rate mortgages that have various monthly payment options (“Option ARMs”). These loans generally allow the borrower to select from fully amortizing payments, interest-only payments, and payments less than the interest accrual rate that results in negative amortization increasing the principal amount of the loan. Negative amortization is subject to various limitations, typically including a 110% maximum principal balance as a percent of original principal balance, which limits the loan-to-value ratio that can be reached. Interest income recognized and added to the principal balance of Option ARM loans was $7 million in 2007, $11 million in 2006, and $4 million in 2005.

Information about the geographic distribution of our single-family mortgage loans follows:

	At Year-End
	2007		2006
	(In millions)
California	$	903	$	1,262
Texas		193		239
Florida		104		138
All other states		472		684
	$	1,672	$	2,323

Single-family mortgage warehouse loans finance mortgage lenders’ origination and acquisition of single-family mortgage loans until sale. Single-family construction loans principally finance homebuilders’ development and construction of single-family homes, condominiums, and town homes, including the acquisition and development of residential lots. Multifamily and senior housing loans finance the development, construction, and lease of apartment projects and housing for independent, assisted, and memory-impaired residents.

Commercial real estate loans primarily finance the development, construction, and lease of office, retail, and industrial projects and are geographically diversified across the United States. Commercial and business loans finance middle-market business operations. Energy finances small to medium sized oil and gas producers and other participants in energy production and distribution activities. In 2006, we sold our asset-based lending operations. Prior to that sale, asset-based lending and leasing primarily included inventory and receivable-

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based loans and direct financing leases on equipment. Consumer and other loans are primarily loans secured by second liens on single-family homes.

At year-end 2007, we had $4.5 billion of unfunded commitments on outstanding loans and $754 million in commitments to originate loans. To meet the needs of our customers, we also issue standby and other letters of credit. Our credit risk in issuing letters of credit is essentially the same as that involved in extending loans to customers. We hold collateral to support letters of credit when we believe appropriate. At year-end 2007, we had outstanding standby letters of credit totaling $359 million, which represent our obligation to guarantee payment of other entities’ specified financial obligations or to make payments based on any failure by them to perform under an obligating agreement. These letters of credit have a weighted average term of approximately three years. The amount, if any, we will ultimately have to fund is uncertain, but we have not historically been required to fund a significant amount of letters of credit. We record fees associated with letters of credit as a liability and recognize the fees as income over the period of the agreement. Fees recognized are included in other noninterest income. Fees generally approximate the initial fair value of the agreement. At year-end 2007, we did not have a significant amount of deferred fees related to these agreements.

At year-end 2007, we had $940 million of real estate construction loans and $484 million of unfunded commitments to single-asset entities we believe meet the definition of a variable interest entity. These arrangements are common in commercial real estate construction, and our involvement as a lender is in the customary form. We believe the entities are variable interest entities. This is because we believe each entity’s equity investment at risk is insufficient to permit the entity to finance its activities without additional subordinated financial support. All of these loans and commitments involve subordinated financial support in the form of pre-arranged sale or refinancing commitments from substantive third parties unrelated to us or any of our affiliates, or include guarantees from financially strong third parties who are developing the properties. We have evaluated each of these loans and commitments under Financial Accounting Standards Board’s Interpretation No. 46(R). Based on these evaluations, we concluded we are not the primary beneficiary of any of these entities because other parties will bear or benefit from the majority of the variability in fair value of each entity’s assets and cash flow. Our loss exposure is limited to the loan or committed amount.

Activity in the allowance for credit losses was:

	For the Year
	2007			2006			2005
	(In millions)
Loans:
Balance at beginning of year	$	65		$	74		$	85
Provision for loan losses		50			1			7
Charge-offs		(11	)		(18	)		(23	)
Recoveries		14			8			5
Balance at year-end		118			65			74
Unfunded credit commitments:
Balance at beginning of year		7			7			7
Provision for commitment-related credit losses		—			—			3
Charge-offs		—			—			(3	)
Balance at year-end		7			7			7
Combined allowances for credit losses at year-end	$	125		$	72		$	81
Provision for:
Loan losses	$	50		$	1		$	7
Commitment-related credit losses		—			—			3
Combined provision for credit losses	$	50		$	1		$	10

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Information about the unpaid principal balance of past due, nonaccrual, restructured, and impaired loans follows:

	At Year-End
	2007		2006
	(In millions)
Accruing loans past due 90 days or more	$	6	$	5
Recorded investment in nonaccrual loans		166		26
Restructured loans included in nonaccrual loans		1		1
Impaired loans included in nonaccrual loans		118		1
Allowance for loan losses on impaired loans		20		—
Average recorded investment in impaired loans		32		2

We did not recognize a significant amount of interest income on impaired loans in 2007, 2006, or 2005. Interest income we would have recognized on nonaccrual loans, had they been performing in accordance with contractual terms, was $8 million in 2007 and was not significant in 2006 or 2005. The aggregate average recorded investment in impaired loans was $32 million in 2007 and $2 million in 2006. We recognized $3 million in 2006 and $4 million in 2005 in interest income on loans that we previously classified as nonaccrual but paid in full.

We are a participant in a loan facility to an entity that previously issued, serviced, and invested in credit-sensitive residential mortgage assets. We currently have $23 million remaining unpaid principal on our portion of the loan. In 2007, the entity experienced significant liquidity challenges because the value of some of the entity’s collateral used to determine its allowable borrowings declined substantially as a result of the credit market disruptions. The entity sold a portion of the collateral securing the loan and paid down the loan with the proceeds. We, and the other lenders, agreed to modify the loan terms to provide for repayment of the loan through cash flows from payments received on the entity’s remaining assets, all of which are pledged as collateral on the loan. We expect loan repayment over the next several years. We believe we have adequately reserved for our probable loss on the loan. We recognized $3 million in interest on the loan in 2007, for which we have received all payments.

We lease two aircraft to a third party under restructured lease agreements classified as operating leases. We classify the aircraft as other assets and are depreciating them over their remaining expected useful lives. The net carrying value of the aircraft was $21 million at year-end 2007, and we anticipate the carrying value will be $11 million at the end of the lease terms in 2009.

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Note 5 — Securities

Securities consist of:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
	(In millions)
At year-end 2007:
Available-for-sale
Mortgage-backed securities:
U.S. Government	$	14	$	—	$	—		$	14
U.S. Government Sponsored Enterprises (FNMA, FHLMC)		552		4		(4	)		552
Private issuer		1,366		—		(54	)		1,312
		1,932		4		(58	)		1,878
Equity securities		4		—		—			4
	$	1,936	$	4	$	(58	)	$	1,882
Held-to-maturity
Mortgage-backed securities:
U.S. Government	$	57	$	—	$	—		$	57
U.S. Government Sponsored Enterprises (FNMA, FHLMC)		1,172		4		(3	)		1,173
Private issuer		2,413		1		(213	)		2,201
	$	3,642	$	5	$	(216	)	$	3,431
At year-end 2006:
Available-for-sale
Mortgage-backed securities:
U.S. Government	$	17	$	—	$	—		$	17
U.S. Government Sponsored Enterprises (FNMA, FHLMC)		496		6		(4	)		498
Private issuer		6		—		—			6
		519		6		(4	)		521
U.S. Government debt securities		4		—		—			4
Equity securities		4		—		—			4
	$	527	$	6	$	(4	)	$	529
Held-to-maturity
Mortgage-backed securities:
U.S. Government	$	79	$	—	$	(1	)	$	78
U.S. Government Sponsored Enterprises (FNMA, FHLMC)		1,725		3		(21	)		1,707
Private issuer		3,049		21		(3	)		3,067
	$	4,853	$	24	$	(25	)	$	4,852

Mortgage loans underlying mortgage-backed securities we hold have adjustable interest rates and generally have initial contractual maturities ranging from 15 to 40 years. Principal and interest installments are due monthly. The actual maturities of mortgage-backed securities may differ from the contractual maturities of the underlying loans because issuers or mortgagors may have the right to call or prepay their securities or loans. All of the securities we own have single-family residential mortgage loans as the underlying assets.

The mortgage-backed securities we purchased in 2007, 2006, and 2005, and a portion of the securities we purchased in prior years, have Option ARMs as the underlying assets. The amortized cost of Option ARM securities in our portfolio at year-end 2007 was $4.2 billion. Of these, $590 million were issued by

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U.S. Government Sponsored Enterprises (FNMA, FHLMC) and the remaining $3.6 billion are senior tranches issued by private issuer institutions.

At year-end 2007, all of the private issuer securities we own carried AAA ratings by two different nationally recognized securities rating organizations, and none have been subsequently downgraded.

At year-end 2007, we held $125 million and at year-end 2006, we held $165 million of securities formed by pooling loans that we previously held in our loan portfolio. We retained $83 million in securities in 2005 that we formed by pooling loans. We did not retain any securities formed by pooling loans in 2007 or 2006. We record these securities at the carrying value of the mortgage loans at the time of securitization.

At year-end 2005, the carrying value of available-for-sale mortgage-backed securities, debt securities, and equity securities were $647 million, $3 million, and $4 million. The carrying value of held-to-maturity mortgage-backed securities at year-end 2005 was $5.6 billion.

Analysis of securities we hold with gross unrealized losses at year-end 2007, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, follows:

	Less Than 12 Months					12 Months or More
			Gross					Gross
	Fair		Unrealized			Fair		Unrealized
	Value		(Losses)			Value		(Losses)
	(In millions)
Available-for-sale
Mortgage-backed securities:
U.S. Government Sponsored Enterprises	$	129	$	(1	)	$	138	$	(3	)
Private issuer		1,307		(54	)		3		—
	$	1,436	$	(55	)	$	141	$	(3	)
Held-to-maturity
Mortgage-backed securities:
U.S. Government Sponsored Enterprises	$	4	$	—		$	611	$	(3	)
Private issuer		1,805		(197	)		282		(16	)
	$	1,809	$	(197	)	$	893	$	(19	)
	$	3,245	$	(252	)	$	1,034	$	(22	)

We consider these unrealized losses temporary because:

•  We believe, based on current estimates of cash flows on the securities, we will receive all contractual amounts due.

•  The securities cannot be settled at maturity or through prepayment in a way that would preclude recovery of substantially all of our recorded investment. We do not have significant purchase premiums on the securities. Additionally, we have no specific plans to sell these securities and we have the ability and intent to hold them until repayment.

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Note 6 — Property and Equipment

Property and equipment consists of:

	Estimated		At Year-End
	Useful Lives		2007			2006
			(In millions)
Land		N/A	$	55		$	50
Buildings		10-40 years		170			157
Leasehold improvements		5-20 years		24			19
Furniture, fixtures, and equipment		3-10 years		73			73
				322			299
Less accumulated depreciation and amortization				(89	)		(85	)
			$	233		$	214

We lease equipment and facilities under operating lease agreements. Total rent expense was $11 million in 2007, $12 million in 2006, and $14 million in 2005. At year-end 2007, our future minimum rental commitments under non-cancelable leases with a remaining term in excess of one year, were:

	(In millions)
2008	$	9
2009		8
2010		8
2011		7
2012		6
Thereafter		9
	$	47

Note 7 — Deposits

Deposits consist of:

	At Year-End
	2007		2006
	(In millions)
Noninterest-bearing demand	$	779	$	845
Interest-bearing demand		3,648		3,442
Savings deposits		172		192
Certificates of deposit		4,776		5,007
	$	9,375	$	9,486

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Scheduled maturities of certificates of deposit at year-end 2007 were:

	$100,000		Less than
	or More		$100,000		Total
			(In millions)
3 months or less	$	747	$	1,447	$	2,194
4-6 months		463		981		1,444
7-12 months		191		461		652
2009		106		246		352
2010		8		36		44
2011		16		45		61
2012		4		23		27
Thereafter		1		1		2
	$	1,536	$	3,240	$	4,776

Note 8 — Borrowings

Information about our short-term (original maturities of 12 months or less) and long-term (original maturities greater than 12 months) Federal Home Loan Bank (“FHLB”) borrowings, repurchase agreements, and other borrowings follows:

	2007			2006			2005
	(Dollars in millions)
Short-term FHLB borrowings:
At year-end:
Balance	$	4,949		$	3,772		$	4,968
Weighted average interest rate		4.3	%		5.2	%		4.0	%
For the year:
Average daily balance	$	3,866		$	4,212		$	3,084
Maximum month-end balance	$	4,949		$	4,877		$	4,968
Weighted average interest rate		5.0	%		5.0	%		3.4	%
Long-term FHLB borrowings:
At year-end:
Balance	$	794		$	1,304		$	1,924
Weighted average interest rate		4.2	%		3.7	%		3.7	%
Repurchase agreements:
For the year:
Average daily balance	$	—		$	—		$	144
Maximum month-end balance	$	—		$	—		$	711
Weighted average interest rate		—			—			2.5	%
Subordinated notes payable to trust (see Note 9):
At year-end:
Balance	$	314		$	142		$	—
Weighted average interest rate		7.2	%		7.2	%		—
Subordinated debentures and other borrowings:
At year-end:
Balance	$	101		$	101		$	101
Weighted average interest rate		8.5	%		8.3	%		6.5	%

Guaranty Bank’s borrowings with the FHLB are secured by a blanket floating lien on certain of Guaranty Bank’s loans, and by securities Guaranty Bank maintains on deposit at the FHLB. At year-end 2007, $10.1 billion of Guaranty Bank’s loans and securities were pledged as securities for FHLB borrowings.

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Stated maturities of our borrowings are:

	Payment Due or Expiring by Year
	Total		2008		2009		2010		2011		2012		Thereafter
	(In millions)
FHLB borrowings	$	5,743	$	5,309	$	224	$	85	$	75	$	50	$	—
Subordinated notes payable to trust		314		—		—		—		—		—		314
Subordinated debentures and other borrowings		101		90		10		1		—		—		—
	$	6,158	$	5,399	$	234	$	86	$	75	$	50	$	314

By year-end 2008, we will have the right to redeem $90 million of our subordinated debentures and, in January 2009, we will have the right to redeem the remaining $10 million. In 2007, we deposited $107 million with the trustees for the subordinated debentures to economically defease the subordinated debentures. We classify the deposit as restricted cash. By depositing the restricted cash with the trustees, all provisions of the related indentures were discharged other than the obligation to pay interest until the redemption dates and the obligation to pay the redemption amounts. We have irrevocably elected to redeem the debentures and the trustees will use the restricted cash to service the debentures and remit the redemption price on the redemption dates. We will remove the debentures and the restricted cash from our balance sheet on the respective redemption and interest due dates.

We have a revolving credit facility with available capacity of $40 million to support our liquidity needs. The revolving credit facility has a two year term and includes financial and other covenants we must maintain. We had not drawn any amounts under the revolving credit facility as of year-end 2007.

Interest expense on borrowings consists of:

	For the Year
	2007		2006		2005
	(In millions)
Short-term FHLB borrowings	$	195	$	209	$	103
Long-term FHLB borrowings		34		61		84
Repurchase agreements		—		—		4
Subordinated notes payable to trust (Note 9)		19		2		—
Subordinated debentures and other borrowings		9		9		7
Preferred stock issued by subsidiaries (Note 9)		7		21		17
	$	264	$	302	$	215

Note 9 — Preferred Stock Issued by Subsidiaries and Subordinated Notes Payable to Trust

Preferred Stock Issued by Subsidiaries

At year-end 2006, Guaranty Bank had two subsidiaries that qualified as real estate investment trusts (“REITs”). The REITs had outstanding variable rate and fixed rate preferred stock, which we classified as preferred stock issued by subsidiaries. The preferred stock issued by the REITs qualified, subject to limitations, as regulatory capital for Guaranty Bank. We paid dividends on the preferred stock of $7 million in 2007, $21 million in 2006, and $17 million in 2005. We reported those dividends on the preferred stock issued by subsidiaries in interest expense on borrowed funds. The weighted average dividend rate paid on the variable rate preferred stock issued by subsidiaries was 6.92% in 2007, 6.66% in 2006, and 4.84% in 2005. In 2007, we redeemed all of the preferred stock of the REITs for $305 million, using proceeds from the subordinated notes payable to trust discussed below.

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Subordinated Notes Payable to Trust

To effect the redemption of the preferred stock of the REITs, we formed a trust to issue preferred securities to third parties and lend the proceeds to us. We do not consolidate the trust because we are not the primary beneficiary. At year-end 2007, we had borrowed $314 million from the trust and purchased $9 million of the trust’s common securities. Our investment in the trust’s common securities is included in other assets, our debt to the trust is included in subordinated notes payable to trust, and interest paid on the subordinated notes payable to trust is included in interest expense on borrowed funds. Our subordinated notes payable to trust have 30 year maturities, are callable after five years, and bear interest at variable rates equal to the stated dividend rates on the trust’s securities. The weighted average interest rate on the subordinated notes payable to trust was 7.20% at year-end 2007.

Note 10 — Earnings Per Share

We computed earnings per share for the year 2007 by dividing net income by the number of our shares distributed by Temple-Inland as follows:

(In millions, except per share)
Net income	$	78
Weighted average shares outstanding — basic and diluted		35.4
Earnings per common share — basic and diluted	$	2.20

Our directors and certain of our key employees have share-based compensation awards including cash-settled awards, restricted stock and stock-settled units, and stock options on our stock. Those awards are described more fully in Note 15. Additionally, directors and key employees of Temple-Inland and Forestar Real Estate Group Inc (“Forestar”), another business distributed by Temple-Inland to its stockholders in 2007, also hold similar awards as a result of conversion of Temple-Inland awards outstanding at the date of distribution of our stock. We do not recognize share-based compensation expense for vesting of the awards of Temple-Inland or Forestar directors or employees. However, upon vesting of stock-settled units or exercise by a Temple-Inland or Forestar award holder of an option on our stock, we issue shares of our stock. Upon issuance, the resulting shares have a dilutive effect on our basic earnings per common share. Additionally, outstanding options have a dilutive effective on our diluted earnings per share. Because these awards on our stock, and those held by our employees discussed in Note 15, were not outstanding until the Temple-Inland awards were converted to awards in our stock, they had no effect on our diluted earnings per share in 2007. Outstanding option awards will be included in our determination of diluted earnings per share in future years. At year-end 2007, 4.2 million of our shares were reserved for issuance under these and future share-based awards. Had we included the outstanding option awards in our calculations for 2007, diluted earnings per share would have been $2.16 (proforma, unaudited).

At year-end 2007, Temple-Inland and Forestar directors and employees held 162 thousand stock-settled units on our stock. The following information summarizes outstanding stock option awards on our stock held by Temple-Inland and Forestar directors and employees at year-end 2007:

					Weighted		Aggregate
			Weighted		Average		Intrinsic Value
			Average		Remaining		(Current Value
			Exercise Price		Contractual		Less Exercise
	Shares		Per Share		Term		Price)
	(In thousands)				(In years)		(In millions)
Outstanding		1,659	$	12		6	$	8
Exercisable		1,074		10		4		7

76

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 11 — Income Taxes

Income tax expense consists of:

	For the Year
	2007			2006			2005
	(In millions)
Current tax provision:
U.S. Federal	$	(66	)	$	(68	)	$	(56	)
State and other		(9	)		(4	)		(3	)
		(75	)		(72	)		(59	)
Deferred tax provision:
U.S. Federal		21			2			(7	)
State and other		6			—			—
		27			2			(7	)
Income tax expense	$	(48	)	$	(70	)	$	(66	)
Income taxes paid to Temple-Inland, net	$	80		$	76		$	76

A reconciliation of the federal statutory rate to our effective income tax rate follows:

	For the Year
	2007			2006			2005
Federal statutory rate		35	%		35	%		35	%
State taxes, net of federal benefit		2	%		2	%		1	%
Other		1	%		—			—
Effective income tax rate		38	%		37	%		36	%

We file income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, we are no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2004.

Significant components of our deferred taxes are:

	At Year-End
	2007			2006
	(In millions)
Deferred tax assets:
Allowance for loan losses	$	41		$	24
Property, equipment, and intangible assets		7			9
Accruals not deductible until paid		9			8
Employee benefits		7			8
Unrealized losses on available-for-sale securities		19			—
Other		16			13
		99			62
Deferred tax liabilities:
Investment in FHLB stock		(18	)		(22	)
Property leased to others		(9	)		(12	)
Unrealized gains on available-for-sale securities		—			(1	)
		(27	)		(35	)
Net deferred tax asset	$	72		$	27

77

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. Realization of deferred tax assets depends upon the generation of future taxable income in the periods the related temporary differences become deductible. We consider projected taxable income and tax planning strategies in assessing realizability. We believe it is more likely than not we will realize the recorded deferred tax assets.

We have not recorded deferred taxes for $31 million of pre-1988 tax bad debt reserves. These reserves would be included in taxable income only if certain events occur, none of which are contemplated.

Note 12 — Litigation

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believe we have established adequate reserves for any probable losses. We do not believe that the outcome of any of these proceedings should have a significant adverse effect on our financial position, long-term results of operations, or cash flow. It is possible; however, that charges related to these matters could be significant to our results or cash flow in any one accounting period.

In 2007, a class was certified in an action in California related to our former mortgage banking operations. The action alleged violations of the state’s laws related to the time a mortgage company must file a lien release following repayment of a mortgage loan. The court subsequently dismissed the case, though the plaintiff has appealed the dismissal. The matter is pending action by the appeals court. We have established reserves we believe are adequate for this matter, and we do not anticipate the outcome will have a material adverse effect on our financial position or long-term results of operations or cash flows.

As a result of our participation in the Visa USA (“Visa”) network — principally related to ATM and debit cards — we own 0.013% of Visa for which we have no carrying value. Visa has filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common stock. In preparation for the offering, the Visa bylaws were modified in fourth quarter 2007 to provide for indemnification of Visa by its members for any ultimate losses related to certain existing litigation, described further in Visa’s registration statement. At the offering date, Visa members will place their ownership interest in escrow for a period of three years, and it is expected that any indemnification obligations will be funded by the escrowed ownership interest. We are not a named defendant in any of Visa’s litigation matters, and have no access to any non-public information about the matters. We have accrued our estimate of the fair value of our indemnification obligation, which we believe is insignificant. One of the matters settled prior to year-end 2007 and Visa had announced its estimate of the probable loss for another. However, several of the litigation matters are only in the very early stages of discovery, and it is impossible to determine the probable loss on those matters at this time. Though we expect the ultimate value of our membership interest to exceed our indemnification obligations, further accruals may be necessary depending on how the litigation matters proceed.

Note 13 — Segment Information

We currently operate in four business segments:

•  Commercial banking, which offers loan and other credit products to residential construction, commercial real estate construction, mortgage warehouse, energy, corporate, and middle market customers; manages our single-family mortgage loan portfolio; and provides commercial deposit and cash management products and services.

•  Retail banking, which offers a broad range of financial products and services to consumers and small businesses, including traditional deposit services, lending products and non-deposit investment products, such as mutual funds and variable annuity products.

78

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  Insurance agency, which offers a comprehensive array of insurance products to consumer and commercial customers including property and casualty, workers’ compensation, health, and construction bonds, for which we receive agency commissions. We do not retain any underwriting risk. The agency also sells fixed annuity products.

•  Treasury, corporate and other, which includes our mortgage-backed security portfolio, borrowings from third parties, the residual impact of funds transfer-pricing and expenses not allocated to other segments.

In 2006, we completed the exit of our mortgage banking segment, which began in 2004 when we sold our third-party mortgage servicing portfolio and eliminated our retail origination locations and continued in 2005 when we stopped our wholesale/broker origination activities.

We evaluate performance based on income before taxes and unallocated expenses. Unallocated expenses represent expenses managed on a company-wide basis and include share-based compensation, charges related to asset impairments and severance, and other expenses allocated to us by Temple-Inland but not directly attributable to us. Our internal management reporting, which is not necessarily comparable with other financial institutions, assigns balance sheet and income statement amounts to segments principally based on which segment has the primary relationship contact with the underlying customer. Segment interest income and interest expense are determined in accordance with GAAP on the assets and liabilities assigned to each segment. In addition, a funding cost for segment assets, and earning credits for the segment liabilities is assigned to determine segment net interest income. Funding costs and earnings credits are determined using an internal funds transfer-pricing methodology based on market prices for marginal wholesale funding of the applicable duration. The provision for credit losses included in each segment is based on an evaluation of the adequacy of the allowance for credit losses associated with the segment’s loans. Administrative, technology, and other support expenses are allocated to each segment using internally developed methodologies.

We operate entirely within the United States, all of our revenues are derived domestically, and all of our property and equipment is located in the United States. No single customer accounts for more than 10% of our consolidated revenues.

79

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

													Treasury,
	Commercial			Retail			Insurance			Mortgage			Corporate
	Banking			Banking			Agency			Banking			and Other			Total
	(In millions)
For the year 2007:
Net interest income	$	278		$	122		$	—		$	—		$	(9	)	$	391
(Provision) credit for credit losses		(41	)		(3	)		—			(1	)		(5	)		(50	)
Noninterest income		29			59			68			—			1			157
Revenues from other segments		—			10			—			—			(10	)		—
Noninterest expense		(68	)		(217	)		(61	)		(11	)		(15	)(a)		(372	)
Segment operating income/income before taxes	$	198		$	(29	)	$	7		$	(12	)	$	(38	)	$	126
Average assets	$	9,676		$	605		$	89		$	47		$	5,543		$	15,960
Goodwill		—			107			37			—			—			144
Depreciation and amortization		7			16			3			—			3			29
Capital expenditures		7			31			1			—			5			44
For the year 2006:
Net interest income	$	292		$	134		$	—		$	1		$	(15	)	$	412
(Provision) credit for credit losses		5			(2	)		—			(1	)		(3	)		(1	)
Noninterest income		40			54			69			2			3			168
Revenues from other segments		—			11			—			—			(11	)		—
Noninterest expense		(80	)		(202	)		(59	)		(19	)		(28	)(a)		(388	)
Segment operating income/income before taxes	$	257		$	(5	)	$	10		$	(17	)	$	(54	)	$	191
Average assets	$	10,003		$	532		$	91		$	98		$	6,110		$	16,834
Goodwill		—			107			34			—			—			141
Depreciation and amortization		7			16			2			—			3			28
Capital expenditures		2			33			1			—			7			43
For the year 2005:
Net interest income	$	288		$	106		$	—		$	5		$	(3	)	$	396
(Provision) credit for credit losses		(6	)		(1	)		—			(1	)		(2	)		(10	)
Noninterest income		39			49			65			21			6			180
Revenues from other segments		—			10			—			—			(10	)		—
Noninterest expense		(77	)		(181	)		(55	)		(53	)		(18	)(a)		(384	)
Segment operating income/income before taxes	$	244		$	(17	)	$	10		$	(28	)	$	(27	)	$	182
Average assets	$	10,220		$	517		$	80		$	407		$	5,056		$	16,280
Goodwill		19			107			33			—			—			159
Depreciation and amortization		8			16			2			2			3			31
Capital expenditures		1			38			1			—			1			41

^(a) Includes unallocated expenses of:

	For the Year
	2007			2006			2005
	(In millions)
Share-based compensation	$	(6	)	$	(7	)	$	(4	)
Charges related to asset impairments and severance		—			(11	)		(5	)
Expenses allocated to us by Temple-Inland but not directly attributable to us		(9	)		(11	)		(8	)
Other		—			1			(1	)
	$	(15	)	$	(28	)	$	(18	)

80

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 14 — Noninterest Expense

In 2006 and 2005, we took actions to reduce costs and our exposure to changing market conditions, including a slow-down in mortgage refinancing activity. In 2006, we sold our asset-based lending operations. As a result, we recognized goodwill impairment of $6 million and related severance and other costs of $2 million. In addition, we incurred $3 million in severance related to the repositioning of our mortgage origination activities. In late 2005 and early 2006, we eliminated our wholesale origination network. These actions affected 250 employees and resulted in the sale or closure of 11 mortgage origination outlets subsequent to year-end 2005. In 2004, we repositioned our mortgage origination activities, and we sold our third-party mortgage servicing rights. As a result, we closed or sold 145 mortgage origination outlets and terminated over 1,300 employees.

Charges related to asset impairments and severance included in noninterest expense consist of:

	For the Year
	2007		2006		2005
	(In millions)
Severance	$	—	$	5	$	2
Goodwill impairment		—		6		—
Other		—		—		3
	$	—	$	11	$	5

A summary of the activity within our accruals for exit costs follows:

	Beginning				Cash			Year-
	of Year		Additions		Payments			End
			(In millions)
For the year 2007:
Contract termination penalties	$	1	$	—	$	(1	)	$	—
Other		3		—		—			3
	$	4	$	—	$	(1	)	$	3
For the year 2006:
Involuntary employee terminations	$	2	$	5	$	(7	)	$	—
Contract termination penalties		1		—		—			1
Other		3		—		—			3
	$	6	$	5	$	(7	)	$	4
For the year 2005:
Involuntary employee terminations	$	3	$	2	$	(3	)	$	2
Contract termination penalties		2		—		(1	)		1
Other		6		—		(3	)		3
	$	11	$	2	$	(7	)	$	6

81

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other noninterest expense consists of:

	For the Year
	2007		2006		2005
	(In millions)
Shared services allocation from Temple-Inland	$	29	$	31	$	25
Furniture, fixtures, and equipment		18		16		20
Advertising and promotional		16		15		20
Professional services		10		12		16
Travel and other employee costs		10		11		12
Postage, printing, and supplies		8		8		9
Depreciation of assets leased to others		6		6		6
Litigation charge		5		—		—
Other		47		52		46
	$	149	$	151	$	154

Note 15 — Share-Based Compensation

Through 2007, we participated in Temple-Inland’s share-based compensation plans and as a result, certain of our employees received share-based compensation awards in the form of cash-settled awards, restricted stock and stock-settled units, and stock options. Concurrent with Temple-Inland’s distribution of our common stock, all outstanding Temple-Inland awards were adjusted into three separate awards: one related to Guaranty common stock, one related to Temple-Inland common stock, and one related to Forestar common stock. These adjustments were made so that immediately following adjustment, the number of shares relating to each award and, for options, the per share option exercise price of the original Temple-Inland award, was proportionally allocated between Guaranty, Temple-Inland, and Forestar awards based on relative per share trading prices of their common stock immediately prior to the distribution. All awards issued as part of this adjustment continue to be subject to their original vesting schedules. We recognize compensation costs on share-based awards ratably over the service period.

After Temple-Inland’s distribution of our stock, our employees no longer participate in the Temple-Inland share-based compensation plans. We have a stock incentive plan which permits awards in various forms, including restricted stock and stock options. At year-end 2007, the only awards outstanding under the plan were the awards resulting from the adjustments to the Temple-Inland awards. We have not issued any awards under that plan subsequent to the distribution.

The expense for the share-based compensation awards granted to our employees was allocated to us by Temple-Inland and is included in compensation and benefits in noninterest expense. We will recognize share-based compensation expense associated with future vesting of our employees’ awards in Guaranty, Temple-Inland, and Forestar stock.

82

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information about outstanding awards to our employees follows:

Cash-settled awards

Cash-settled awards generally vest and are paid after three years from the date of grant or the attainment of defined performance goals, generally measured over a three-year period. A summary of cash-settled awards outstanding to our employees at year-end 2007, following the adjustments described previously, follows:

			Aggregate
	Equivalent		Current
	Shares		Value
	(In thousands)		(In millions)
Awards on Guaranty stock		88	$	1
Awards on Temple-Inland stock		265		6
Awards on Forestar stock		88		2
			$	9

Of the $9 million aggregate current value of awards to be settled in cash, we had recognized cumulative compensation expense of $5 million through year-end 2007. There were no awards settled in cash in 2007, 2006, or 2005. The fair value at date of grant for cash-settled awards granted to our employees by Temple-Inland in 2007 was $8 million and in 2006 was $5 million.

Restricted stock and stock-settled units

Restricted stock and stock-settled unit awards generally vest after terms varying from three to six years, and provide for accelerated vesting upon retirement, death, disability, or if there is a change in control. There were no restricted stock or stock-settled unit awards granted in 2007. There were 26 thousand restricted stock shares and stock-settled units on our stock, 79 thousand on Temple-Inland stock, and 26 thousand on Forestar stock outstanding to our employees at year-end 2007 with an aggregate current value of $3 million. The fair value of restricted stock and stock-settled units vested in 2007 was less than $1 million.

Stock options

Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability, or if there is a change in control. All options were granted with an exercise price equal to the market value of Temple-Inland’s common stock on the date of grant. A summary of stock option awards outstanding to our employees at year-end 2007, following the adjustments described previously, follows:

					Weighted		Aggregate
			Weighted		Average		Intrinsic Value
			Average		Remaining		(Current Value
			Exercise Price		Contractual		Less Exercise
	Shares		Per Share		Term		Price)
	(In thousands)				(In years)		(In millions)
Outstanding on Guaranty stock		327	$	14		7	$	1
Outstanding on Temple-Inland stock		971		17		7		5
Outstanding on Forestar stock		327		22		7		1
							$	7
Exercisable on Guaranty stock		142	$	10		5	$	1
Exercisable on Temple-Inland stock		419		12		5		4
Exercisable on Forestar stock		142		15		5		1
							$	6

83

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate difference between the exercise price and market value of shares received by employees upon option exercise was $8 million in 2007, $8 million in 2006, and $6 million in 2005. The aggregate fair value of stock options granted to our employees by Temple-Inland in 2007 was $3 million, in 2006 was $2 million, and in 2005 was $2 million. At year-end 2007, we had $3 million of compensation expense related to unvested stock options remaining to be recognized.

Temple-Inland estimated the fair value of the stock options it granted using the Black-Scholes-Merton option-pricing model and the following assumptions:

	For the Year
	2007			2006			2005
Expected dividend yield		2.3	%		2.4	%		2.3	%
Expected stock price volatility		22.8	%		25.1	%		28.2	%
Risk-free interest rate		4.9	%		4.4	%		4.2	%
Expected life of options in years		6			6			8

The expected life of options was based on Temple-Inland’s historical experience. The expected stock price volatility was based on historical prices of Temple-Inland’s common stock for a period corresponding to the expected life of the options with consideration given to current conditions and events. Historical data was used to estimate pre-vesting forfeitures stratified into two groups based on job level. It is likely that estimates used to determine the fair value of our share-based compensation awards will differ in the future.

Share-based compensation expense

Pre-tax share-based compensation expense allocated to us by Temple-Inland consists of:

	For the Year
	2007		2006		2005
	(In millions)
Cash-settled awards	$	3	$	2	$	—
Restricted stock and stock-settled units		—		3		2
Stock options		3		2		2
	$	6	$	7	$	4

We did not capitalize any share-based compensation in 2007, 2006, or 2005.

Note 16 — Benefit Plans

Our defined contribution plans include a 401(k) matching plan, which is funded, and a supplemental defined contribution plan for key employees, which is unfunded. The annual expense of our defined contribution plans was $8 million in 2007 and in 2006, and $6 million in 2005. The unfunded liability for our supplemental defined contribution plan was $2 million at year-end 2007 and at year-end 2006 and is included in other liabilities.

84

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 17 — Summary of Quarterly Results of Operations (Unaudited)

Selected quarterly financial results for 2007 and 2006 were:

	First			Second			Third			Fourth
2007	Quarter			Quarter			Quarter			Quarter
				(In millions)
Interest income	$	243		$	247		$	251		$	255
Interest expense		(148	)		(152	)		(152	)		(153	)
Net interest income		95			95			99			102
(Provision) credit for credit losses		2			—			(19	)		(33	)
Net interest income after (provision) credit for credit losses		97			95			80			69
Noninterest income		39			38			42			38
Noninterest expense		(93	)		(94	)		(90	)		(95	)
Income before taxes		43			39			32			12
Income tax expense		(16	)		(15	)		(11	)		(6	)
Net income	$	27		$	24		$	21		$	6

	First			Second			Third			Fourth
2006	Quarter			Quarter			Quarter			Quarter
	(In millions)
Interest income	$	241		$	253		$	249		$	254
Interest expense		(137	)		(146	)		(149	)		(153	)
Net interest income		104			107			100			101
(Provision) credit for credit losses		(2	)		2			(1	)		—
Net interest income after (provision) credit for credit losses		102			109			99			101
Noninterest income		42			44			43			39
Noninterest expense		(102	)		(104	)		(91	)		(91	)
Income before taxes(a)		42			49			51			49
Income tax expense		(16	)		(19	)		(19	)		(16	)
Net income	$	26		$	30		$	32		$	33

^(a) Income before taxes includes the following charges related to asset impairments and severance associated with sale of asset-based operations and repositioning of our mortgage origination activities:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In millions)
Severance	$	3	$	1	$	2	$	(1	)
Goodwill impairment		—		6		—		—
	$	3	$	7	$	2	$	(1	)

85

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 18 — Fair Value of Financial Instruments

Carrying value and the estimated fair value of our financial instruments were as follows:

	At Year-End
	2007						2006
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
	(In millions)
Financial assets
Loans receivable	$	9,928		$	9,940		$	9,617		$	9,635
Mortgage-backed securities available-for-sale:
U.S. Government and U.S. Government Sponsored Enterprises:
Market quotes		566			566			515			515
Private Issuer:
Internally valued		1,307			1,307			—			—
Market quotes		5			5			6			6
		1,878			1,878			521			521
Mortgage-backed securities held-to-maturity:
U.S. Government and U.S. Government Sponsored Enterprises:
Market quotes		1,229			1,230			1,804			1,785
Private Issuer:
Internally valued		2,214			2,002			2,806			2,826
Market quotes		199			199			243			241
		3,642			3,431			4,853			4,852
Financial liabilities
Deposits	$	9,375		$	9,381		$	9,486		$	9,472
Federal Home Loan Bank borrowings		5,743			5,747			5,076			5,054
Subordinated notes payable to trust		314			277			142			142
Other borrowings		101			101			101			101
Other off-balance sheet instruments
Commitments to extend credit	$	(7	)	$	(7	)	$	(7	)	$	(7	)

The fair value of most of our financial instruments, other than U.S. Government and U.S. Government Sponsored Enterprise securities, are based on financial models. When we use financial models, we use inputs and assumptions we believe would be used by market participants in the current environment. However, many of our inputs are not directly observable. We excluded from the table financial instruments that are carried at fair value, other than securities, or that have fair values that approximate their carrying amount due to their short-term nature or variable interest rates.

There are few observable market prices for our private issuer securities. In many cases, the security structures were designed by the issuers in accordance with our specific collateral characteristic requirements, and we purchased all of the securities in a structure or were one of a few purchasers of the securities in a structure. The following are the types of inputs we use in our valuation models, along with the market-based sources for each.

Input	Source
Yield spread	This represents the spread earned by an investor in a security relative to the swap curve. This spread is derived using bids obtained from dealers on specific securities in our portfolio (as explained further below).

86

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prepayment assumptions on underlying mortgages	Obtained from current dealer research and tailored to each security’s combination of index, and underlying loan prepayment penalty and age characteristics
Cash flow projections	We use a third-party cash flow model to generate security-specific cash flow projections. The model incorporates our prepayment assumptions and the manner in which the underlying principal and interest flows are distributed among the various tranches in the overall structure.

An overview of our valuation process follows:

•  We obtain market quotes from investment dealers for several private issuer securities within our portfolio. Each of these securities is utilized in the process as a pricing benchmark for a segment of the portfolio, having characteristics similar to other owned securities. The similar characteristics can include, but are not limited to, product type, credit rating, coupon, margin, age, and presence of prepayment penalties.

•  We obtain current prepayment assumptions from investment research for mortgage loans similar to those underlying each of the benchmark securities. We input the prepayment assumptions into a third-party cash flow generation model. Using the model, we generate cash flow projections for each security, taking into consideration the specific manner in which cash flows are distributed among that pool’s tranches.

•  We derive a yield spread, solving for the spread to the swap curve implied by the market quote.

•  We utilize the resultant yield spread to value the non-benchmark securities by calculating the present value of each of the projected cash flows using the swap curve plus the appropriate benchmark yield spread. The sum of the discounted cash flows represents the estimated current fair value.

At year-end 2007, we had commitments to originate or purchase mortgage loans totaling $7 million and no commitments to sell mortgage loans.

87

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 19 — Parent Company Condensed Financial Information

Condensed financial information for Guaranty Financial Group Inc. with investments in our subsidiaries accounted for using the equity method follows:

Condensed Balance Sheets

	At Year-End
	2007		2006
	(In millions)
Assets
Cash and cash equivalents	$	5	$	—
Investment in Guaranty Bank		1,111		1,091
Investment in preferred stock of subsidiary of Guaranty Bank		305		—
Investment in other subsidiaries		21		(3	)
Receivable from subsidiaries other than Guaranty Bank		—		137
Other assets		15		5
Total Assets	$	1,457	$	1,230
Liabilities
Subordinated notes payable to trust	$	314	$	142
Payable to subsidiaries other than Guaranty Bank		—		72
Other liabilities		5		1
Total Liabilities		319		215
Stockholders’ Equity		1,138		1,015
Total Liabilities and Stockholders’ Equity	$	1,457	$	1,230

Condensed Statements of Income

	For the Year
	2007			2006			2005
	(In millions)
Income
Dividends from Guaranty Bank	$	35		$	150		$	25
Preferred dividends from subsidiary of Guaranty Bank		10			—			—
Interest income from other subsidiaries		2			—			—
Total income		47			150			25
Expenses
Interest on subordinated notes payable to trust		(19	)		(2	)		—
Interest on borrowings from other subsidiaries		(6	)		(5	)		(5	)
Total expenses		(25	)		(7	)		(5	)
Income before taxes and equity in undistributed earnings of subsidiaries		22			143			20
Income tax benefit		8			2			—
Income before equity in undistributed earnings of subsidiaries		30			145			20
Equity in undistributed earnings of subsidiaries (distributions in excess of earnings of subsidiaries)		48			(24	)		96
Net Income	$	78		$	121		$	116

88

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Statements of Cash Flow

	For the Year
	2007			2006			2005
	(In millions)
CASH PROVIDED BY OPERATIONS
Net income	$	78		$	121		$	116
Adjustments:
(Equity in undistributed earnings of subsidiaries) distributions in excess of earnings of subsidiaries		(48	)		24			(96	)
Other		(5	)		(5	)		5
		25			140			25
CASH USED FOR INVESTING
Additional investment in Guaranty Bank		—			(10	)		—
Investment in preferred stock of subsidiary of Guaranty Bank		(305	)		—			—
Additional investment in nonbank subsidiaries		(17	)		—			—
Other		(5	)		(4	)		—
		(327	)		(14	)		—
CASH PROVIDED BY (USED FOR) FINANCING
Issuance of subordinated notes payable to trust		172			142			—
Decrease (increase) in receivable from subsidiaries other than Guaranty Bank		137			(137	)		—
Repayment of intercompany borrowings with other subsidiary		(68	)		—			—
Dividends paid to Temple-Inland		(35	)		(135	)		(25	)
Capital contribution from Temple-Inland		101			—			—
Other		—			4			—
		307			(126	)		(25	)
Net increase in cash and cash equivalents		5			—			—
Cash and cash equivalents at beginning of year		—			—			—
Cash and cash equivalents at year-end	$	5		$	—		$	—

Note 20 — Transactions with Temple-Inland

A summary of transactions with Temple-Inland that are included in our consolidated financial statements follows:

	For the Year
	2007		2006		2005
	(In millions)
Dividends	$	35	$	135	$	25
Income taxes		48		70		66
Allocated expenses:
From Temple-Inland		35		38		29
To Temple-Inland		17		12		11
Net capital contributions		116		13		2

	At Year-End
	2007			2006
	(In millions)
Amounts due (to) from Temple-Inland	$	(8	)	$	8
Deposits		3			7

89

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prior to Temple-Inland’s distribution of our stock, we paid dividends to Temple-Inland based upon our earnings and capital needs and subject to certain regulations. Additionally, we paid income taxes to Temple-Inland as if we filed a separate income tax return. Finally, we reimbursed Temple-Inland for expenses incurred on our behalf and allocated to us. Additional allocated expenses incurred by Temple-Inland but not directly attributable to us were allocated to us, and we recognized them in our expenses with a corresponding increase in additional paid-in capital, net of tax. Please read Note 1 for additional information.

A summary of allocated expenses from Temple-Inland follows:

	For the Year
	2007		2006		2005
	(In millions)
Information technology support	$	15	$	14	$	13
Legal, human resources, and other administrative costs		7		7		6
Variable compensation		2		4		2
Accounting and finance		3		3		2
Internal audit, governance, and other		2		3		2
		29		31		25
Share-based compensation		6		7		4
	$	35	$	38	$	29

We charge Temple-Inland for rent, taxes, insurance, and utilities in accordance with the terms of an operating lease agreement, and for insurance management services. We billed Temple-Inland $8 million in 2007, $7 million in 2006, and $6 million in 2005 for these services.

Note 21 — Capital Adequacy and Other Regulatory Matters

Guaranty Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. The payment of dividends from Guaranty Bank is subject to proper regulatory notification or approval.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Guaranty Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items such as unfunded credit commitments, as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. At year-end 2007, Guaranty Bank met or exceeded all of its capital adequacy requirements.

90

GUARANTY FINANCIAL GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At year-end 2007, Guaranty Bank was “well-capitalized.” The following table sets forth actual capital amounts and ratios along with the minimum capital amounts and ratios Guaranty Bank must maintain to meet capital adequacy requirements and to be categorized as “well-capitalized.”

						For Capital Adequacy					For Categorization As
	Actual					Requirements					‘Well-Capitalized‘
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in millions)
At year-end 2007:
Total Risk-Based Ratio (Risk-based Capital/Total Risk-weighted Assets)	$	1,403		10.54	%		³$1,065		³8.00	%		³$1,331		³10.00	%
Tier 1 (Core) Risk-Based Ratio (Core Capital/Total Risk-weighted Assets)	$	1,282		9.63	%		³  $532		³4.00	%		³  $799		³6.00	%
Tier 1 (Core) Leverage Ratio (Core Capital/Adjusted Tangible Assets)	$	1,282		7.74	%		³  $662		³4.00	%		³  $828		³5.00	%
Tangible Ratio (Tangible Capital/Tangible Assets)	$	1,282		7.74	%		³  $331		³2.00	%		n/a		n/a
At year-end 2006:
Total Risk-Based Ratio (Risk-based Capital/Total Risk-weighted Assets)	$	1,297		10.52	%		³  $987		³8.00	%		³$1,234		³10.00	%
Tier 1 (Core) Risk-Based Ratio (Core Capital/Total Risk-weighted Assets)	$	1,225		9.93	%		³  $493		³4.00	%		³  $740		³6.00	%
Tier 1 (Core) Leverage Ratio (Core Capital/Adjusted Tangible Assets)	$	1,225		7.62	%		³  $643		³4.00	%		³  $804		³5.00	%
Tangible Ratio (Tangible Capital/Tangible Assets)	$	1,225		7.62	%		³  $321		³2.00	%		n/a		n/a

At year-end 2007, $305 million of the preferred stock of subsidiary of Guaranty Bank, which is related to our subordinated notes payable to trust, qualified as core capital for Guaranty Bank.

The federal banking agencies have published changes to capital adequacy guidelines and risk-weightings that are mandatory for some financial institutions, but optional for others such as Guaranty Bank. We have not yet determined whether we will apply the provisions of the revised guidelines.

A reconciliation of Guaranty Bank’s stockholder’s equity and risk-based regulatory capital follows:

	At Year-End
	2007			2006
	(In millions)
Guaranty Bank stockholder’s equity	$	1,111		$	1,091
Preferred stock issued by subsidiaries		—			303
Preferred stock issued by subsidiary related to subordinated notes payable to trust		305			—
Intangible assets		(169	)		(168	)
Unrealized losses (gains) on available-for-sale securities, net of tax		35			(1	)
Tangible equity (core capital)		1,282			1,225
Includable allowances for credit losses		124			71
Preferred stock issued by subsidiaries		—			2
Other		(3	)		(1	)
Risk-based capital	$	1,403		$	1,297

91

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have had no changes in or disagreements with our independent registered public accounting firm to report.

Item 9A.   Controls and Procedures

(a) Disclosure controls and procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Internal control over financial reporting

Management’s annual report on internal control over financial reporting is included in Item 8. Financial Statements.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in fourth quarter 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.   Other Information

None.

92

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Set forth below is certain information about the members of our Board of Directors:

			Year First
			Elected to
Name	Age		the Board		Principal Occupation
Kenneth M. Jastrow, II		60		2007	Retired Chairman and Chief Executive Officer of Temple-Inland Inc.
Kenneth R. Dubuque		59		2007	President and Chief Executive Officer of Guaranty Financial Group Inc.
David W. Biegler		61		2008	Chairman of Estrella Energy, L.P.
Larry R. Faulkner		63		2007	President of Houston Endowment Inc.
Robert V. Kavanaugh		71		2007	Retired President and Chief Executive Officer of Stockton Saving Bank
Leigh M. McAlister		58		2007	Professor University of Texas at Austin McCombs Graduate School of Business
Robert D. McTeer		65		2007	Distinguished Fellow at the National Center for Policy Analysis
Edward R. (“Ted”) McPherson		62		2008	Chief Executive Officer of InterSolve Group, Inc.
Raul R. Romero		54		2007	President and Chief Executive Officer Alliance Consulting Group
John T. Stuart III		71		2007	Retired Senior Executive Vice President, Chief Lending Officer of Guaranty Bank
Larry E. Temple		72		2007	Attorney at Law
Billy D. Walker		64		2007	Retired executive with Motorola Inc.

The remaining information required by this item is incorporated herein by reference from our definitive proxy statement, involving the election of directors, to be filed pursuant to Regulation 14A with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K (or Definitive Proxy Statement).

Item 11.   Executive Compensation

The information required by this item is incorporated by reference from our Definitive Proxy Statement.

93

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

Information at year-end 2007 about our compensation plans under which our Common Stock may be issued follows:

					Number of
					Securities
	Number of				Remaining Available
	Securities to be				for Future Issuance
	Issued Upon		Weighted-Average		Under Equity
	Exercise of		Exercise Price of		Compensation Plans
	Outstanding		Outstanding		(Excluding Securities
	Options, Warrants,		Options, Warrants,		Reflected in
	and Rights *		and Rights		Column(a))
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by security holders		2,367,205	$	12.40		1,831,554
Equity compensation plans not approved by security holders		None		None		None
Total		2,367,205	$	12.40		1,831,554

* Amount includes 210,247 Restricted Stock Units (payable in stock) and 174,928 Restricted Stock Awards.

The remaining information required by this item is incorporated by reference from our Definitive Proxy Statement.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from our Definitive Proxy Statement.

Item 14.   Principal Accounting Fees and Services

The information required by this item is incorporated by reference from our Definitive Proxy Statement.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) Documents Filed as Part of Report.

1. Financial Statements

Our consolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K.

2. Financial Statement Schedules

All schedules are omitted as the required information is either inapplicable or the information is presented in our consolidated financial statements and notes thereto in Item 8 above or in Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 above.

3. Exhibits

94

EXHIBIT INDEX

Exhibit
Number			Exhibit Description
	2	.1	Separation and Distribution Agreement among the Registrant, Forestar Real Estate Group Inc. and Temple-Inland Inc. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	3	.1	Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	3	.2	Amended and Restated Bylaws of the Registrant. (Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	4	.1	Specimen Certificate for shares of common stock, par value $1.00 per share, of the Registrant. (Incorporated herein by reference to Exhibit 4.1 to Amendment No. 5 to the Registrant’s Form 10 dated as of December 4, 2007.)
	4	.2	Rights Agreement between the Registrant and Computershare Trust Company, N.A., as Rights Agent. (Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	4	.3	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K, filed by the Company on December 11, 2007.)
	10	.1	Tax Matters Agreement among the Registrant, Forestar Real Estate Group Inc. and Temple-Inland Inc. (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	10	.2	Employee Matters Agreement among the Registrant, Forestar Real Estate Group Inc. and Temple-Inland Inc. (Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	10	.3	Master Transition Services Agreement among the Registrant, Forestar Real Estate Group Inc. and Temple-Inland Inc. (Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated as of December 11, 2007.)
	10	.4	Guaranty Financial Group Inc. Savings and Retirement Plan.*
	10	.5†	Guaranty Financial Group Inc. Supplemental Executive Retirement Plan.*
	10	.6†	Guaranty Financial Group Inc. 2007 Stock Incentive Plan.*
	10	.7†	Guaranty Financial Group Inc. Director’s Fee Deferral Plan.*
	10	.8	Master Transactions Agreement between the Registrant and the Federal Home Loan Bank of Dallas dated August 1, 2005. (Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Form 10 dated as of August 10, 2007.)
	10	.9	Advances and Security Agreement between the Registrant and the Federal Home Loan Bank of Dallas dated August 1, 2005. (Incorporated herein by reference to Exhibit 10.9 to the Registrant’s Form 10 dated as of August 10, 2007.)
	10	.10†	Form of Indemnification Agreement to be entered into between the Registrant and each of its directors.(Incorporated herein by reference to Exhibit 10.10 to Amendment No. 5 to the Registrant’s Form 10 dated as of December 4, 2007.)
	10	.11†	Change in Control Agreement between the Registrant and each of its named executive officers.*
	10	.12†	Employment Agreement between the Registrant and Kenneth R. Dubuque dated August 9, 2007. (Incorporated herein by reference to Exhibit 10.12 to the Registrant’s Form 10 dated as of August 10, 2007.)
	10	.13†	Form of Restricted Stock Agreement (time and performance vesting).*
	10	.14†	Form of Restricted Stock Agreement (performance vesting).*
	21	.1	List of Subsidiaries of the Registrant.*
	23	.1	Consent of Ernst & Young LLP.*
	31	.1	Certification of Kenneth R. Dubuque pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.*

95

Exhibit
Number			Exhibit Description
	31	.2	Certification of Ronald D. Murff pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002.*
	32	.1	Certification of Kenneth R. Dubuque pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
	32	.2	Certification of Ronald D. Murff pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*	Filed herewith.
†	Management contract or compensatory plan or arrangement

96

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Guaranty Financial Group Inc. (Registrant)

By: /s/   Kenneth R. Dubuque

Kenneth R. Dubuque

President and

Chief Executive Officer

Date: February 29, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/  Kenneth R. Dubuque Kenneth R. Dubuque	Director, President and Chief Executive Officer (Principal Executive Officer)	February 29, 2008
/s/  Ronald D. Murff Ronald D. Murff	Senior Executive Vice President, Chief Financial Officer (Principal Financial Officer)	February 29, 2008
/s/  Craig E. Gifford Craig E. Gifford	Executive Vice President, (Principal Accounting Officer)	February 29, 2008
/s/  Kenneth M. Jastrow, II Kenneth M. Jastrow, II	Director, Chairman of the Board	February 29, 2008
/s/  David W. Biegler David W. Biegler	Director	February 29, 2008
/s/  Larry R. Faulkner Larry R. Faulkner	Director	February 29, 2008
/s/  Robert V. Kavanaugh Robert V. Kavanaugh	Director	February 29, 2008
/s/  Leigh M. McAlister Leigh M. McAlister	Director	February 29, 2008
/s/  Edward R. (“Ted”) McPherson Edward R. (“Ted”) McPherson	Director	February 29, 2008
/s/  Robert D. McTeer Robert D. McTeer	Director	February 29, 2008

97

Signature	Capacity	Date
/s/  Raul R. Romero Raul R. Romero	Director	February 29, 2008
/s/  John T. Stuart III John Stuart III	Director	February 29, 2008
/s/  Larry E. Temple Larry E. Temple	Director	February 29, 2008
/s/  Billy D. Walker Billy D. Walker	Director	February 29, 2008

98

EX-10.4

Exhibit 10.4

GUARANTY FINANCIAL GROUP INC. SAVINGS AND RETIREMENT PLAN

(As amended and restated effective January 1, 2008)

TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS			4
	1.1	“Accounts”	4
	1.2	“Account Balance”	4
	1.3	“Active Funds”	4
	1.4	“Actual Deferral Percentage”	4
	1.5	“Affiliate Plan”	5
	1.6	“After Tax Contributions”	5
	1.7	“After Tax Contributions Account”	5
	1.8	“Approved Absence”	5
	1.9	“Automatic Contribution Arrangement”	6
	1.10	“Automatic Contribution Employee”	6
	1.11	“Automatic Contribution Participant”	6
	1.12	“Automatic Increase Participant”	6
	1.13	“Average Contribution Percentage” means	6
	1.14	“Before Tax Contributions”	7
	1.15	“Before Tax Contributions Account”	7
	1.16	“Borrower”	8
	1.17	“Code”	8
	1.18	“Common Stock”	8
	1.19	“Common Stock Fund”	8
	1.20	“Company”	8
	1.21	“Company Retirement Contributions”	8
	1.22	“Company Retirement Contributions Account”	8
	1.23	“Compensation”	8
	1.24	“Contributing Participant”	9
	1.25	“Distribution Event”	9

i

1.26	“Eligible Borrower”	9
1.27	“Eligible Employee”	9
1.28	“Employee”	10
1.29	“Employee Matters Agreement”	10
1.30	“Employer”	10
1.31	“Employer Matching Contributions”	10
1.32	“Employer Matching Contributions Account”	10
1.33	“ERISA”	10
1.34	“Forestar”	10
1.35	“Forestar Common Stock”	10
1.36	“Forestar Plan”	10
1.37	“Forestar Stock Fund”	10
1.38	“Funds”	10
1.39	“Group”	11
1.40	“Guaranty Common Stock”	11
1.41	“Guaranty Stock Fund”	11
1.42	“Highly Compensated Employee”	11
1.43	“Hour of Service”	11
1.44	“Inactive Participant”	12
1.45	“Investment Committee”	12
1.46	“Loan”	12
1.47	“Merged Plan”	12
1.48	“Merger Date”	12
1.49	“Months of Participation”	12
1.50	“Non-Highly Compensated Employee”	13
1.51	“Non-Residential Loan”	13
1.52	“Notice”	13
1.53	“One Year Break in Service”	13

ii

1.54	“Participant”	13
1.55	“Participant Loan Subaccount”	13
1.56	“Period of Separation”	13
1.57	“Period of Service”	14
1.58	“Period of Severance”	17
1.59	“Plan”	17
1.60	“Plan Administrator”	17
1.61	“Plan Year”	17
1.62	“Profit Sharing Contributions”	17
1.63	“Profit Sharing Contributions Account”	17
1.64	“Qualified Nonelective Contributions”	17
1.65	“Qualified Nonelective Contributions Account”	17
1.66	“Required Beginning Date”	17
1.67	“Residential Loan”	18
1.68	“Rollover Account”	18
1.69	“Rollover Contributions”	18
1.70	“Section 414(n) Leased Employee”	18
1.71	“Section 414 Compensation”	18
1.72	“Section 415 Compensation”	19
1.73	“Severance from Service Date”	20
1.74	“Stock Fund”	20
1.75	“Subaccounts”	20
1.76	“Temple-Inland Common Stock”	20
1.77	“Temple-Inland Savings Plan”	20
1.78	“Temple-Inland Stock Fund”	20
1.79	“Trust Agreement”	20
1.80	“Trust Fund”	21
1.81	“Trustee”	21

iii

	1.82	“Valuation Date”	21
ARTICLE 2 ELIGIBILITY AND PARTICIPATION			21
	2.1	Participation.	21
	2.2	Enrollment as a Contributing Participant.	23
	2.3	No Participation by Non-Covered Employees.	25
ARTICLE 3 PARTICIPANT CONTRIBUTIONS			25
	3.1	Before Tax Contributions.	25
	3.2	Suspension of Contributions.	25
	3.3	Changes in Contribution Elections.	26
	3.4	Payment of Contributions.	26
	3.5	No Make-Up of Contributions.	26
	3.6	Limitations on Before Tax Contributions.	26
	3.7	Rollovers.	30
ARTICLE 4 EMPLOYER CONTRIBUTIONS			30
	4.1	Matching Contributions.	30
	4.2	Profit Sharing Contributions.	32
	4.3	Qualified Nonelective Contributions.	32
	4.4	Reinstatement of Forfeited Account Balances; Payment of Administrative Expenses.	33
	4.5	Limitations on Contributions.	33
	4.6	Limitations on After Tax Contributions and Employer Matching Contributions.	33
ARTICLE 5 ACCOUNTS			37
	5.1	Maintenance of Accounts.	37
	5.2	Adjustments to Accounts; Statements Provided to Participants.	37
ARTICLE 6 VESTING AND FORFEITURES			37
	6.1	Before Tax Contributions, After Tax Contributions, Qualified Nonelective Contributions and Rollover Accounts.	37
	6.2	Vesting of Company Retirement Contributions Account.	37

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	6.3	Vesting of Employer Matching Contributions Account and Profit Sharing Contributions Account.	38
	6.4	Forfeitures.	40
	6.5	Determination of Period of Service.	40
ARTICLE 7 INVESTMENT OF CONTRIBUTIONS			41
	7.1	Investment Funds.	41
	7.2	Inactive Funds.	41
	7.3	Loan Fund.	42
	7.4	Investment of Employer and Participant Contributions.	42
	7.5	Change in Investment Elections.	42
	7.6	Change in Existing Investments.	43
	7.7	Voting of Stock Fund Shares (for Periods Prior to January 1, 2010).	43
	7.8	Tender or Exchange Offers (for Periods Prior to January 1, 2010).	44
	7.9	Confidentiality (for Periods Prior to January 1, 2010).	44
ARTICLE 8 WITHDRAWALS DURING EMPLOYMENT			45
	8.1	Withdrawal of After Tax Contributions.	45
	8.2	Withdrawals After Age 591/2.	45
	8.3	Withdrawal of Employer Matching Contributions.	45
	8.4	Hardship Withdrawals.	45
	8.5	Withdrawal of Rollover Accounts.	48
	8.6	Withdrawals of Certain Default Before Tax Contributions.	48
	8.7	Application for Withdrawals; Processing.	48
	8.8	Limit on Number of Withdrawals.	49
	8.9	Effect of Withdrawals on Investments.	49
	8.10	Timing and Form of Payment of Withdrawals.	49
	8.11	Withdrawals Only Available to Employees.	49
ARTICLE 9 PAYMENT OF BENEFITS			49
	9.1	Distribution of Benefits Upon Occurrence of Distribution Event.	49

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	9.2	Payment of Benefits by Trustee; Form of Payment.	50
	9.3	Installment Option for Certain Retiring Participants.	51
	9.4	Required Minimum Distributions.	51
	9.5	Payment to Participant’s Estate.	52
	9.6	Incapacity of Payee.	52
	9.7	Plan Administrator Determines Payee.	52
	9.8	Rollover Distributions.	52
	9.9	Distributions Pursuant to Qualified Domestic Relations Orders.	54
ARTICLE 10 LOANS			54
	10.1	Availability of Loans; Application for Loans.	54
	10.2	Terms of Loans.	55
	10.3	Events of Default.	57
	10.4	Accounting for Loans.	58
ARTICLE 11 ADMINISTRATION OF THE PLAN			58
	11.1	Authority of Plan Administrator.	58
	11.2	Claims Procedure.	59
	11.3	Financial Statements.	61
	11.4	Liability of Plan Administrator.	61
	11.5	Standard of Judicial Review of Plan Administrator Action.	61
ARTICLE 12 MANAGEMENT OF THE TRUST FUND			62
	12.1	Designation of Trustee.	62
	12.2	Plan Assets Held in Trust.	62
	12.3	Appointment of Investment Manager.	63
ARTICLE 13 AMENDMENT OF THE PLAN			64
	13.1	Amendment.	64
ARTICLE 14 DISCONTINUANCE OF THE PLAN			66
	14.1	Right To Terminate Plan.	66
	14.2	Valuation of Trust Fund upon Termination.	66

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	14.3	Continuation of Trust.	66
	14.4	Plan Mergers and Transfers of Assets and Liabilities.	66
	14.5	Certain Spin-Offs and Mergers.	68
ARTICLE 15 STATEMENT OF INTENT			68
	15.1	Qualification.	68
	15.2	Section 404(c) of ERISA.	69
	15.3	Responsibility of Named Fiduciaries.	69
	15.4	Legal Rights and Liabilities.	69
ARTICLE 16 TOP-HEAVY RULES			70
	16.1	Applicability of Rules.	70
	16.2	Determination of Top-Heavy Status.	70
	16.3	Determination of Accrued Benefits.	71
	16.4	Vesting for Top-Heavy Years.	72
	16.5	Contributions for Top-Heavy Years.	72
	16.6	Certain Changes Effective January 1, 2002.	73
ARTICLE 17 GENERAL PROVISIONS			75
	17.1	Nonalienation of Benefits.	75
	17.2	No Right to Continued Employment.	75
	17.3	Rules of Construction.	76
	17.4	Appendices.	76
ARTICLE 18 LAPSED BENEFITS			76
	18.1	Notification to Participants and Beneficiaries.	76
	18.2	Reinstatement of Lapsed Benefits.	77
APPENDIX I			1
APPENDIX II			2
KNUTSON MORTGAGE CORPORATION APPENDIX			4
STOCKTON SAVINGS BANK APPENDIX			1
WESTERN CITIES MORTGAGE CORPORATION APPENDIX			1

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TEXAS NATIONAL AGENCY, INC. APPENDIX	1
HEMET FEDERAL SAVINGS AND LOAN ASSOCIATION APPENDIX	1
MINIMUM DISTRIBUTION APPENDIX	1

APPENDICES

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GUARANTY FINANCIAL GROUP INC. SAVINGS AND RETIREMENT PLAN

     This Plan was originally adopted effective as of April 1, 1989 and was named the “Guaranty Savings Plan.”

     Effective January 1, 1992 the Plan was re-named the “Temple-Inland Financial Services Savings and Retirement Plan” and was amended and restated to provide for participating employers to make retirement contributions to the Plan on behalf of eligible employees and to make certain other changes.

     Effective as of July 1, 1993, the Temple-Inland Food Service Corporation Savings and Retirement Plan (the “Food Service Plan”) was merged into the Plan.

     Effective July 1, 1993, the Plan was amended and restated to reflect the merger of the Food Service Plan into the Plan, re-name the Plan the “Temple-Inland Savings and Retirement Plan,” change the investment options available under the Plan, authorize Participants to make after tax contributions, authorize the Plan Administrator to make Plan loans to participants, and make certain other changes.

     Effective December 30, 1994, the Plan was amended and restated to reflect the merger of the American Federal Bank, F.S.B. Capital Accumulation and Cap-Plus Plan into this Plan as of December 30, 1994 and to make certain other changes.

     Effective as of January 1, 1995, the Plan was amended and restated to eliminate the ability of Participants to make certain hardship withdrawals.

     Effective September 2, 1995 the Plan was amended to (a) authorize the contribution by Employers of “qualified nonelective contributions,” (b) provide for the treatment of Employees who are represented by United Paperworkers International Union Local 654, (c) increase the maximum amount of Employer Matching Contributions that may be credited for any Plan Year on behalf of salaried and nonunion Employees of Temple-Inland Food Service Corporation, (d) provide for three new investment fund options, and (e) make certain other changes.

     Effective January 1, 1996, the Plan was amended and restated to make certain changes in response to comments made by the IRS in connection with a determination letter request filed with respect to the Plan and make certain other changes. The amendments made by such amendment and restatement were effective as of January 1, 1996, except that the amendments made to Sections 1.4, 1.14, 1.22, 1.36, 1.57, 3.6 and 4.6 as of such date were effective as of January 1, 1987.

     The Plan was amended and restated effective May 1, 1997 to (a) allow cash rollover contributions to the Plan, (b) allow the Plan Administrator to provide for the use by Participants of telephonic or other means of communication to make elections, (c) make certain changes relating to the merger of other plans into this Plan, (d) incorporate prior amendments made to the Plan, and (e) make certain other changes, including changes made to reflect recent legislation. The amendments made by such amendment and restatement were effective as of May 1, 1997, except that the amendments made to the definition of “Highly Compensated Employee” and Sections 3.6 and 4.6 were effective as of January 1, 1997, the amendments made to Section 3.7 were effective April 1, 1997, the amendment of Appendix I was effective as of October 27, 1997, and the deletion of former Appendix III was effective as of April 30, 1997.

     The Plan was amended and restated effective March 1, 2000 to (a) increase the maximum amount of Employer Matching Contributions that may be made hereunder on behalf of any Participant during any Plan Year, and (b) to make certain other changes. The amendments made by such amendment and restatement were, except as provided therein, effective as of March 1, 2000, except that the amendments made to Sections 2.1, 3.2, 4.2, 4.5, 7.5 and 7.6 were effective as of January 1, 2000.

     The Plan was amended and restated effective December 1, 2001 to reflect changes in applicable law made by the Economic Growth and Tax Relief Reconciliation Act of 2001 and to make certain other changes. The amendments made by such amendment and restatement were effective as of December 1, 2001, except as otherwise provided therein.

     The Plan was amended and restated effective September 1, 2004, to reflect changes to the Plan’s provisions relating to the Funds offered under the Plan and to make certain other changes.

     The Plan was amended and restated effective January 1, 2006, to reflect changes in the Treasury Regulations under Sections 401(k) and 401(m) of the Code and to make certain other changes. The amendments made by such amendment and restatement were effective January 1, 2006, unless otherwise provided herein.

     The Plan was amended and restated effective January 1, 2007, (i) to change the vesting schedule for Company Retirement Contributions from a five (5)-year cliff vesting schedule to a three (3)-year graduated vesting schedule, and (ii) to permit a non-spouse beneficiary to elect a Direct Rollover of certain distributions hereunder.

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     The Plan was amended effective December 1, 2007, to add Target Retirement Funds as investment funds under Article 7 hereof.

     The Plan was amended and restated effective January 1, 2008, (i) to provide for the full vesting of the Employer Matching Contributions Accounts and Company Retirement Contributions Accounts of a Participant whose employment with the Group is designated as terminating as a result of the Transformation Plan announced by Temple Inland Inc. in a press release dated February 26, 2007; (ii) to eliminate new investments in, but permit transfers out of, the Temple-Inland Stock Fund, the Guaranty Stock Fund and the Forestar Stock Fund; (iii) to provide for the liquidation the Temple-Inland Stock Fund, the Guaranty Stock Fund and the Forestar Stock Fund, effective December 31, 2009; (iv) to provide that Employer Matching Contributions and Profit Sharing Contributions made on behalf of a Participant will be invested in the same investment funds in which the Participant’s Before Tax Contributions are invested; (v) to comply with the qualified automatic contribution arrangement requirements of Sections 401(k)(13) and 401(m)(12) of the Code, (vi) to allow an Automatic Contribution Participant to withdraw certain default Before Tax Contributions; (vii) to eliminate After-Tax Contributions, (viii) to change the vesting schedule for Employer Matching Contributions from a three (3)-year graduated schedule to a two (2)-year cliff schedule to comply with the qualified automatic contribution arrangement requirements of Sections 401(k)(13) and 401(m)(12) of the Code, (ix) to change the vesting schedule for Company Retirement Contributions made for Plan Years beginning before January 1, 2008, from a three (3)-year cliff schedule to a two (2)-year cliff vesting schedule, (x) to change the name of the Plan from the “Temple-Inland Savings and Retirement Plan” to the “Guaranty Financial Group Inc. Savings and Retirement Plan,” (xi) to eliminate the mandatory cashout of the vested Accounts of a terminated Participant who has attained age sixty-five (65), and (xii) to permit a terminated Participant to commence distributions of his vested Accounts on his Required Beginning Date in periodic installment payments. The amendments made by such amendment and restatement were effective January 1, 2008, unless otherwise provided herein.

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ARTICLE 1

DEFINITIONS

     As used herein, the following terms shall have the following respective meanings, unless a different meaning is required by the context:

     1.1 “Accounts” means, as applicable, a Participant’s Company Retirement Contributions Account, Before Tax Contributions Account, After Tax Contributions Account, Employer Matching Contributions Account, Qualified Nonelective Contributions Account, Profit Sharing Contributions Account, Rollover Account, and the Subaccounts maintained under such Accounts. The Plan Administrator may establish such additional Accounts and Subaccounts as it may determine in its discretion.

     1.2 “Account Balance” means the aggregate balance of a Participant’s Accounts.

     1.3 “Active Funds” means the investment funds listed in Section 7.1 hereof.

     1.4 “Actual Deferral Percentage” means

          (a) For each Plan Year the average of the ratios (calculated separately for each Employee) of: (i) the amount of Before Tax Contributions and Qualified Nonelective Contributions to be paid to the Plan on behalf of an Employee for that Plan Year pursuant to Sections 3.1 and 4.3 hereof, to (ii) that Employee’s Section 414 Compensation for that Plan Year.

          (b) The Actual Deferral Percentage of any Employee who is a Highly Compensated Employee for a Plan Year and who is eligible to have before tax contributions allocated to his accounts under two (2) or more plans or arrangements described in Section 401(k) of the Code that are maintained by the Group shall be determined as if all such before tax contributions were made under a single plan or arrangement. If such plans or arrangements have different plan years, the Actual Deferral Percentage of the Highly Compensated Employee shall be determined by aggregating the before tax contributions made on behalf of the Highly Compensated Employee, and the compensation (using the definition of compensation set forth in the plan or arrangement being tested) received by the Highly Compensated Employee, during the plan year of the plan or arrangement being tested.

4

          (c) If the Plan satisfies the requirements of Section 401(a)(4) or Section 410(b) of the Code only if aggregated with one (1) or more other plans or if one (1) or more other plans satisfy the requirements of Section 401(a)(4) or Section 410(b) of the Code only if aggregated with the Plan, the Actual Deferral Percentages of Employees shall be determined as if all such plans were a single plan. A plan or arrangement described in Section 401(k) of the Code may be aggregated with this Plan to satisfy the requirements of Section 410(b) of the Code only if such plan or arrangement uses the same testing method as this Plan for purposes of satisfying the actual deferral percentage test of Section 401(k) of the Code.

     1.5 “Affiliate Plan” means a defined contribution plan (other than this Plan) that is maintained by any member of the Group and that is intended to be qualified under Section 401(a) of the Code.

     1.6 “After Tax Contributions” means the voluntary contributions made by a Participant pursuant to Section 3.1 hereof for Plan Years beginning before January 1, 2008, which are neither deductible for federal income tax purposes nor reduce a Participant’s taxable income, plus the amount of such contributions made by a Participant to a Merged Plan that are transferred on behalf of a Participant to this Plan. No After Tax Contributions shall be made by any Participant for Plan Years beginning after December 31, 2007.

     1.7 “After Tax Contributions Account” means the separate account maintained for each Participant who has made After Tax Contributions that accounts for the Participant’s share of the Trust Fund attributable to his After Tax Contributions.

     1.8 “Approved Absence” means an Employee’s period of absence occurring by reason of the following events:

          (a) service in the Armed Forces of the United States; provided, however, that the Employee has re-employment rights under applicable laws and complies with the requirements of such laws and is re-employed by the Group;

          (b) an approved leave of absence for medical or disability reasons granted to an Employee pursuant to his Employer’s established personnel rules and policies; or

          (c) any other leave of absence approved by his Employer; provided, however, that no such leave of absence shall be approved for more than six (6) months in the aggregate.

5

     1.9 “Automatic Contribution Arrangement” means the automatic enrollment and contribution provisions of Sections 2.1(c) and (e), 2.2(b) and (c) and 4.1 hereof that are intended to constitute a “qualified automatic contribution arrangement” within the meaning of Treasury Regulation Section 1.401(k)-3(j)(1).

     1.10 “Automatic Contribution Employee” means any Employee other than an Employee who has an affirmative election in effect (that remains in effect) on January 1, 2008, to (a) have Before Tax Contributions made on the Employee’s behalf in a specified percentage of Compensation, or (b) not have Before Tax Contributions made on the Employee’s behalf. An Employee shall cease to be an Automatic Contribution Employee if the Employee makes an election (that remains in effect) to (x) have Before Tax Contributions made on his behalf in a different percentage of Compensation than provided by Sections 2.2(b) and (c) hereof, or (y) not have any Before Tax Contributions made on his behalf.

     1.11 “Automatic Contribution Participant” means an Automatic Contribution Employee who becomes a Participant pursuant to Section 2.1(c)(ii) hereof.

     1.12 “Automatic Increase Participant” means (a) each Automatic Contribution Participant, other than an Automatic Contribution Participant who, by Notice to the Plan Administrator, makes an election (that remains in effect) not to have the automatic increases provided for by Section 2.2(c) hereof apply to the Participant, and (b) each other Participant who, by Notice to the Plan Administrator, makes an election (that remains in effect) to have Section 2.2(c) hereof apply.

     1.13 “Average Contribution Percentage” means

          (a) For each Plan Year, the average of the ratios (calculated separately for each Employee) of: (i) the sum of the employee contributions and employer matching contributions (within the meaning of Section 401(m) of the Code) under the Plan on behalf of an Employee for the relevant Plan Year, to (ii) that Employee’s Section 414 Compensation for the relevant Plan Year.

          (b) The Average Contribution Percentage of any Employee who is a Highly Compensated Employee for the Plan Year and who is eligible to make employee contributions or to have matching contributions, qualified nonelective contributions or elective deferrals (as defined in Section 401(m)(4) of the Code) allocated to his account under two (2) or more plans described in

6

Section 401(a) of the Code or arrangements described in Section 401(k) of the Code that are maintained by the Group shall be determined as if all such contributions and deferrals were made under a single plan. If such plans or arrangements have different plan years, the Average Contribution Percentage of the Highly Compensated Employee shall be determined by aggregating such contributions and deferrals made by and/or on behalf of the Highly Compensated Employee, and the compensation (using the definition of compensation set forth in the plan or arrangement being tested) received by the Highly Compensated Employee, during the plan year of the plan or arrangement being tested.

          (c) If the Plan satisfies the requirements of Section 401(a)(4) or Section 410(b) of the Code only if aggregated with one (1) or more other plans or if one (1) or more other plans satisfy the requirements of Section 401(a)(4) or Section 410(b) of the Code only if aggregated with the Plan, the Average Contribution Percentages of Employees shall be determined as if all such plans were a single plan. A plan may be aggregated with this Plan for purposes of satisfying the requirements of Section 410(b) of the Code only if such plan uses the same testing method as this Plan to satisfy the actual contribution percentage test of Section 401(m) of the Code.

          (d) To the extent permitted by regulations promulgated under Section 401(m) of the Code, the Plan Administrator may elect to take into account “elective deferrals” (within the meaning of Section 401(m) of the Code) and Qualified Nonelective Contributions, in calculating the Average Contribution Percentage of Employees.

          (e) To the extent prohibited by Treasury Regulation Section 1.401(m)-2(a)(5), the Plan Administrator shall not take into account disproportionate matching contributions in calculating the Average Contribution Percentage of Employees.

     1.14 “Before Tax Contributions” means the amount of Compensation deferred by a Participant pursuant to Section 3.1 hereof on a before tax basis, plus the amount of elective deferrals (within the meaning of Section 402(g) of the Code) that are transferred on behalf of a Participant to this Plan from a Merged Plan.

     1.15 “Before Tax Contributions Account” means the separate account maintained for each Participant who has made Before Tax Contributions that accounts for the Participant’s share of the Trust Fund attributable to his Before Tax Contributions.

7

     1.16 “Borrower” means any person who has an outstanding loan under Article 10 of this Plan.

     1.17 “Code” means the Internal Revenue Code of 1986, as amended, and shall also include all regulations promulgated thereunder.

     1.18 “Common Stock” means Temple-Inland Common Stock, Guaranty Common Stock or Forestar Common Stock, as applicable.

     1.19 “Common Stock Fund” means the Temple-Inland Stock Fund, the Guaranty Stock Fund or the Forestar Stock Fund, as applicable.

     1.20 “Company” means TIN Inc. d/b/a Temple-Inland and any successor to such corporation by merger, purchase, or otherwise. Effective December 28, 2007, the term “Company” means the Guaranty Financial Group Inc., a Delaware Corporation, and any successor to such corporation by merger, purchase, or otherwise.

     1.21 “Company Retirement Contributions” means contributions made by an Employer pursuant to former Section 4.1 hereof for Plan Years beginning before January 1, 2008, plus the amount of any similar contributions (as determined by the Plan Administrator) that are transferred to this Plan from a Merged Plan on behalf of a Participant. No Company Retirement Contributions shall be made by the Company for Plan Years beginning after December 31, 2007.

     1.22 “Company Retirement Contributions Account” means the separate account for each Participant which shall account for his share of the Trust Fund attributable to Company Retirement Contributions made on his behalf.

     1.23 “Compensation” means wages paid by an Employer to an Employee, as reported by the Employer in Box 1 on Form W-2, and elective deferrals (within the meaning of Section 402(g)(3) of the Code) under any plan sponsored by the Group, payroll reduction contributions made on a before tax basis under any cafeteria plan (within the meaning of Section 125 of the Code) or qualified transportation fringe benefit plan (within the meaning of Section 132(f) of the Code) sponsored by the Group, but excludes reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, welfare benefits, deferred compensation, and, in the case of a Highly Compensated Employee only, stock option income and payments made with respect to performance units or restricted stock. If for any Plan Year a Participant’s Compensation exceeds the two hundred thousand dollar ($200,000) (one hundred fifty

8

thousand dollar ($150,000) for Plan Years beginning before January 1, 2002) limitation imposed by Section 401(a)(17) of the Code, as adjusted as provided therein, such excess amount shall not be taken into account for such Plan Year for purposes of this Section or any other provision of the Plan. Notwithstanding the foregoing, the definition of the term “Compensation” under this Section 1.23 is a safe harbor definition of compensation set forth in Treasury Regulations Section 1.414(s)-1(c)(3), as modified by Treasury Regulations Sections 1.414(s)-1(c)(4) and (5), and does not include any compensation amount that is not Section 415 Compensation.

     1.24 “Contributing Participant” shall mean a Participant who elects to make Before Tax Contributions to the Plan pursuant to Article 3 hereof.

     1.25 “Distribution Event” means, with respect to a Participant: (a) the Participant’s retirement, death, disability, or severance from employment (separation from service, for periods prior to January 1, 2002) with the Group; or (b) the sale or other disposition by any member of the Group to an unrelated corporation of all or substantially all of the assets used in a trade or business, but only with respect to a Participant who continues employment with the acquiring corporation and the acquiring corporation does not maintain the Plan after the disposition; (c) the sale or other disposition by any member of the Group of its interest in a subsidiary to an unrelated entity but only with respect to a Participant who continues employment with the subsidiary and the acquiring entity does not maintain the Plan after the disposition; and (d) the termination of the Plan without establishment or maintenance of an alternative defined contribution plan (as defined in Treasury Regulation Section 1.401(k) — 1(d)(4)); provided however, that the preceding clauses (b) and (c) shall not apply on and after January 1, 2002. Notwithstanding the foregoing, if a Participant has a change in job status from Employee to Section 414(n) Leased Employee, such change in job status shall not constitute a Distribution Event.

     1.26 “Eligible Borrower” means any Participant who has an Account Balance under this Plan or any alternate payee who has a right to an Account Balance under this Plan, provided that such Participant or alternate payee is a “party in interest” (within the meaning of Section 3(14) of ERISA).

     1.27 “Eligible Employee” means an Employee who is an active Employee on the December 31 of a Plan Year for which his Employer makes a Profit Sharing Contribution hereunder.

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     1.28 “Employee” means a person who is employed by an Employer on a salaried, salaried plus commission, commission-only or hourly basis and who is not covered by a collective bargaining agreement entered into with an Employer, unless such agreement, by specific reference to the Plan provides for coverage under the Plan.

     1.29 “Employee Matters Agreement” means the Employee Matters Agreement by and among Temple-Inland Inc., Forestar and the Company entered into pursuant to the Transformation Plan announced by Temple Inland Inc. in a press release dated February 26, 2007.

     1.30 “Employer” means each of the entities listed on Appendix I hereto, subject to such limitations or restrictions as to participation by employees of such entities as may be reflected on such Appendix I.

     1.31 “Employer Matching Contributions” means the contributions made by an Employer pursuant to Section 4.1 hereof, plus the amount of any employer matching contributions (within the meaning of Section 401(m)(4) of the Code) transferred on behalf of a Participant to this Plan from a Merged Plan.

     1.32 “Employer Matching Contributions Account” means the separate account for each Participant which shall account for his share of the Trust Fund attributable to any Employer Matching Contributions made or transferred to this Plan on his behalf.

     1.33 “ERISA” means the Employee Retirement Income Security Act of 1974, as now in effect or hereafter amended and shall also include all regulations promulgated thereunder.

     1.34 “Forestar” means Forestar Real Estate Group Inc., a Delaware Corporation.

     1.35 “Forestar Common Stock” means common stock, par value one dollar ($1.00) per share, of Forester.

     1.36 “Forestar Plan” means the Forestar Savings and Retirement Plan maintained by Forestar.

     1.37 “Forestar Stock Fund” means an investment fund hereunder invested in Forestar Common Stock.

     1.38 “Funds” means the investment funds provided for by Sections 7.1 and 7.2 hereof.

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     1.39 “Group” means the Company, and any entity that is treated as a single employer together with the Company pursuant to Sections 414(b), 414(c) or 414(m) of the Code or is required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code. For the purpose under the Plan of determining the Period of Service of a Participant, each entity shall be included in the Group only for such period or periods during which it is treated as a single employer together with the Company pursuant to Sections 414(b), 414(c) or 414(m) of the Code or is required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code, except as provided in Section 1.57 hereof.

     1.40 “Guaranty Common Stock” means common stock, par value one dollar ($1.00) per share, of the Company.

     1.41 “Guaranty Stock Fund” means an investment fund hereunder invested in Guaranty Common Stock.

     1.42 “Highly Compensated Employee” means any Employee who, with respect to the Group, is described in either clauses (a) or (b) below:

          (a) Was a “5-percent owner” (as described in Section 414(q) of the Code) at any time during the Plan Year or the twelve (12) month period preceding the Plan Year (the “Lookback Year”); or

          (b) Received Section 415 Compensation from the Group in excess of eighty thousand dollars ($80,000) (as adjusted for cost-of-living increases) for the Lookback Year and was in the group of employees for such year consisting of the top twenty percent of employees when ranked on the basis of Section 415 Compensation during such year.

     1.43 “Hour of Service” means

          (a) An hour for which an employee is paid, or entitled to payment, for the performance of duties for any member of the Group. Such hours will be credited to the employee for the computation period in which the duties are performed; and

          (b) An hour for which an employee is paid, or entitled to payment, by any member of the Group on account of a period of time during which no duties are performed (irrespective of whether

11

the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which is incorporated herein by reference; and

          (c) An hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by any member of the Group. An hour of service will not be credited both under (a) or (b), as the case may be, and under this subsection (c). Such hours will be credited to employees for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made.

          (d) Hours of service shall be credited for any individual considered to be a Section 414(n) Leased Employee.

     1.44 “Inactive Participant” means a Participant who is employed by the Group, but who is not an Employee.

     1.45 “Investment Committee” means the Guaranty Financial Group Inc. Investment Committee, as appointed by the Board of Directors of the Company.

     1.46 “Loan” means a loan made pursuant to Article 10 hereof or that is treated as a Loan pursuant to Section 10.2(j) hereof

     1.47 “Merged Plan” means a tax-qualified defined contribution plan that is merged into this Plan or from which account balances are transferred (other than pursuant to a rollover) to this Plan, in either case with the consent of the Board of Directors or Chief Executive Officer of the Company.

     1.48 “Merger Date” means the date as of which a Merged Plan is merged into this Plan or as of which account balances are transferred to this Plan from a Merged Plan, as designated by the Plan Administrator.

     1.49 “Months of Participation” means the number of calendar months (with partial months being counted as full months) during the period beginning on (a) the date on which an Employee provides Notice to the Plan Administrator electing to make Before Tax Contributions (or After Tax Contributions for Plan Years beginning before January 1, 2008) hereunder, or (b) in the case of an Automatic Contribution Employee, the day after the expiration of the election period set forth in Section 2.2(b)(ii) hereof, and

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ending on the date the Participant ceases to be employed by any member of the Group. If the Plan Administrator determines that there are insufficient records to determine a Participant’s Months of Participation pursuant to the foregoing provisions of this Section 1.49, the Plan Administrator may determine a Participant’s Months of Participation using such methods and assumptions as it determines necessary or appropriate in its sole discretion, provided that such methods and assumptions are applied in a consistent and nondiscriminatory manner to similarly situated Participants. In the case of a Participant described in Section 1.57(b)(ii), (iv) or (xi) hereof, the Participant’s Months of Participation shall include the Participant’s “months of participation” in the Merged Plan, the Temple-Inland Savings Plan or the Forestar Plan, as applicable.

     1.50 “Non-Highly Compensated Employee” means, with respect to a Plan Year, an Employee who is eligible to participate in the Plan pursuant to Article 2 hereof and who is not a Highly Compensated Employee.

     1.51 “Non-Residential Loan” means any Loan that is not a Residential Loan.

     1.52 “Notice” means a notice, application or request provided by a Participant to a designated party in such form (which may be written, telephonic, electronic, or another means of communication) as may be specified by the party to receive such Notice.

     1.53 “One Year Break in Service” means a consecutive twelve (12) month Period of Severance during which an Employee does not perform an Hour of Service and is not on an Approved Absence.

     1.54 “Participant” means (a) an Employee who is eligible to participate in the Plan under Article 2 hereof, and (b) except for purposes of Articles 2 (other than Section 2.1(f) and 2.3), 3, 4, 8, 9, and 16 hereof, any person on whose behalf an Account is maintained under the Plan.

     1.55 “Participant Loan Subaccount” means the separate Subaccount maintained for each Participant who has an outstanding Loan and to which the promissory note evidencing any such Loan shall be allocated.

     1.56 “Period of Separation” means a period of time commencing with the date a person separates from service with the Group and ending with the date that person resumes employment with the Group.

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     1.57 “Period of Service” means

          (a) The period commencing on the date a person is credited with an Hour of Service after April 1, 1989, and ending on the date a Period of Severance begins, including any Period of Separation of less than twelve (12) consecutive months. The determination of a Participant’s Period of Service shall be subject to the rules set forth in Section 6.5 hereof. For purposes of determining a Participant’s Period of Service, the Severance from Service Date of a Participant who is absent from service beyond the first anniversary of the first day of absence for maternity or paternity reasons is the second anniversary of the first day of such absence. The period between the first and second anniversaries of the first day of absence from work shall be neither a Period of Service nor a Period of Severance. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of a birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement.

          (b) Notwithstanding Section 1.57(a) hereof:

               (i) For purposes of determining the Period of Service of an Employee who was employed by an Employer on April 1, 1989, periods of employment by (A) Guaranty Federal Savings and Loan Association, Dallas, Texas, (B) First Federal Savings and Loan Association of Austin, Austin, Texas, and (C) Delta Savings Association of Texas, Alvin, Texas, prior to April 1, 1989, shall be considered service for the Group;

               (ii) The Period of Service of a Participant whose service for vesting purposes under a Merged Plan was determined on a basis other than hours of service shall include the service credited under such plan as of its Merger Date (provided that if the Merged Plan was at any time an Affiliate Plan, no duplication of credited service shall occur);

               (iii) In the case of a Participant who became an Employee (A) on or about September 30, 2000 in connection with the purchase by Guaranty Business Credit Corporation of certain assets of Capital Factors, Inc., (B) on or about October 2, 2000 in connection with the purchase by Timberline Insurance Managers, Inc. of certain assets of FG Holdings, Inc., or (C) on or about January 26,

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2001 in connection with the purchase by Guaranty Business Credit Corporation of certain assets of Finova Capital Corporation, periods of employment with Capital Factors, Inc., FG Holdings, Inc., or Finova Capital Corporation, as applicable, prior to the date of becoming an Employee shall be considered service for the Group for purposes of determining the Participant’s Period of Service for purposes of Section 6.2 hereof; and

               (iv) The Period of Service of a Participant whose service for vesting purposes under a Merged Plan was determined based on hours of service shall consist of the following: (A) a number of years equal to the number of years of service credited to the Participant before the plan year or other computation period used for determining years of service under the Merged Plan (the “Computation Period”) during which the Merger Date occurs; (B) the greater of (I) the period of service that would be credited to the Participant under the elapsed time method for his service during the entire Computation Period in which the Merger Date occurs, or (II) the service taken into account for the Computation Period that includes the Merger Date under the hours of service method as of the Merger Date; and (C) the Period of Service credited to the Participant for service subsequent to the Merger Date commencing on the day after the last day of the Computation Period in which the Merger Date occurs.

               (v) The Period of Service of a Participant who became an Employee in connection with Guaranty Residential Lending, Inc.’s purchase of the assets of Old Kent Mortgage Company from Fifth Third Bancorp of Cincinnati, Ohio, shall include periods of service credited under the Old Kent Thrift Plan.

               (vi) A Participant’s Period of Service shall include the Participant’s Period of Service credited to the Participant under the Joint Venture Master 401(k) Plan maintained by TIN Inc., except to the extent that the inclusion of such service would result in a duplication of credited service with respect to any period.

               (vii) For purposes of determining the Period of Service of an Employee who was hired in connection with that certain Stock Sale Agreement by and between PLM International, Inc. and Guaranty Bank that closed on or about January 1, 2000, periods of employment with American Finance Group, Inc. and/or its affiliates shall be considered Service for the Group.

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               (viii) For purposes of determining the Period of Service of an Employee who became employed by the Group in connection with that certain Asset Purchase Agreement by and among Guaranty Insurance Services, Inc., TCT Insurance Group, LP, TCT GP, LLC, and TCT Holdings LLP that closed as of February 1, 2004, periods of employment with TCT Insurance Group, LP and/or its affiliates shall be considered service for the Group.

               (ix) For purposes of determining the Period of Service of an Employee who became employed by the Group in connection with that certain Branch Purchase and Assumption Agreement entered into on July 1, 2004 by and between Pan American Bank, FSB, United PanAm Financial Corp., and Guaranty Bank, periods of employment with Pan American Financial and/or its affiliates shall be considered service for the Group.

               (x) In the case of an individual who became an Employee on or about July 1, 2007, in connection with the purchase by Guaranty Insurance Services Inc. of certain assets of Hilliard Box Insurance, periods of employment with Hilliard Box Insurance prior to the date of becoming an Employee shall be considered service for the Group for purposes of determining the Employee’s Period of Service for purposes of eligibility to receive allocations of Company Retirement Contributions hereunder.

               (xi) If a Participant transferred employment to an Employer from Temple-Inland Inc., any member of the “Temple-Inland Group” (within the meaning of the Employee Matters Agreement), Forestar or any member of the “Forestar Group” (within the meaning of the Employee Matters Agreement) and such employment transfer is covered by the Employee Matters Agreement, the Participant’s Period of Service shall include the Participant’s “Period of Service” credited to the Participant under the Temple-Inland Savings Plan or the Forestar Plan, except to the extent that the inclusion of such service would result in a duplication of credited service with respect to any period.

               (xii) An Employee’s Period of Service shall include prior service with a corporation or other entity acquired by any member of the Group or from which any member of the Group acquired all or a part of the assets of a trade or business to such extent as may be provided by the agreement pursuant to which the applicable member of the Group acquired such corporation, other entity, or assets of all or a part of a trade or business.

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     1.58 “Period of Severance” means a period of time commencing on a person’s Severance from Service Date and ending with the date that person resumes his employment with the Group.

     1.59 “Plan” means the Temple-Inland Savings and Retirement Plan. Effective December 28, 2007, the term “Plan” means the Guaranty Financial Group Inc. Savings and Retirement Plan.

     1.60 “Plan Administrator” means the individual or committee appointed by the Board of Directors or Chief Executive Officer of the Company to manage and administer the Plan as provided in Article 11 hereof. The Plan Administrator shall be a “named fiduciary” for the purposes of Section 402(a)(1) of ERISA, responsible for the administration, operation and interpretation of the Plan.

     1.61 “Plan Year” means the calendar year commencing on January 1 and ending on the following December 31.

     1.62 “Profit Sharing Contributions” means the discretionary profit sharing contributions, if any, made by an Employer for a Plan Year beginning on or after January 1, 2008, pursuant to Section 4.2 hereof, plus the amount of any profit sharing contributions transferred on behalf of a Participant to this Plan from a Merged Plan.

     1.63 “Profit Sharing Contributions Account” means the separate account for each Participant which shall account for his share of the Trust Fund attributable to any Profit Sharing Contributions made or transferred to the Plan on the Participant’s behalf.

     1.64 “Qualified Nonelective Contributions” means contributions made by an Employer pursuant to Section 4.3 hereof for Plan Years beginning before January 1, 2008, plus the amount of any qualified nonelective contributions (within the meaning of Section 401(m)(4)(c) of the Code) transferred on behalf of a Participant to this Plan from a Merged Plan. No Qualified Nonelective Contributions shall be made by the Company for Plan Years beginning after December 31, 2007.

     1.65 “Qualified Nonelective Contributions Account” means the separate account maintained for each Participant who has been allocated Qualified Nonelective Contributions that accounts for the Participant’s share of the Trust Fund attributable to Qualified Nonelective Contributions.

     1.66 “Required Beginning Date” means the later of (a) April 1 of the calendar year following the calendar year in which a Participant attains age 70¹/2, or (b) in the case of a Participant who is not a five

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percent (5%) owner (as defined in Section 416 of the Code) with respect to the Plan Year during which the Participant attains age 70¹/2, April 1 of the calendar year following the calendar year in which the Participant has a severance from employment with the Group.

     1.67 “Residential Loan” means any Loan that is used to acquire any dwelling unit that within a reasonable period of time is to be used (determined at the time the loan is made) as the principal residence of the Eligible Borrower.

     1.68 “Rollover Account” means the separate account maintained for each Participant which shall account for his share of the Trust Fund attributable to his Rollover Contributions.

     1.69 “Rollover Contributions” means rollover contributions made to the Plan pursuant to Section 3.7 hereof plus the amount of any rollover contributions transferred on behalf of a Participant to this Plan from a Merged Plan.

     1.70 “Section 414(n) Leased Employee” means, any person who is not an employee of a recipient of the leased employee’s services (“recipient”) if (a) such services are provided pursuant to an agreement between the recipient and any other person (the “leasing organization”), (b) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one year, and (c) such services are performed under the primary direction or control by the recipient.

     1.71 “Section 414 Compensation” means wages paid by an Employer to an Employee, as reported by an Employer in Box 1 on Form W-2, plus elective deferrals (within the meaning of Section 402(g)(3) of the Code) under any plan sponsored by the Group and compensation reduction contributions made on a before tax basis under any cafeteria plan (within the meaning of Section 125 of the Code) or qualified transportation fringe benefit plan (within the meaning of Section 132(f) of the Code) sponsored by any member of the Group, minus any compensation amount that is not Section 415 Compensation; provided, however, that the Plan Administrator may elect to (a) use any definition of compensation permitted under Section 414(s) of the Code and the regulations thereunder for any Plan Year and/or (b) limit the compensation taken into account with respect to an Employee to that portion of the Plan Year during which the Employee was eligible to participate in the Plan. In no event may a Participant’s Section 414 Compensation exceed the two hundred thousand dollar ($200,000) (one hundred fifty thousand

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dollar ($150,000) for Plan Years beginning before January 1, 2002) limitation imposed by Section 401(a)(17) of the Code, as adjusted as provided therein.

     1.72 “Section 415 Compensation” means

          (a) Wages paid to an Employee by an Employer, as reported by an Employer in Box 1 on Form W-2, plus elective deferrals (within the meaning of Section 402(g)(3) of the Code) under any plan sponsored by the Group and compensation reduction contributions made on a before tax basis under any cafeteria plan (within the meaning of Section 125 of the Code) or qualified transportation fringe benefit plan (within the meaning of Section 132(f) of the Code) sponsored by any member of the Group. Except as provided herein, Section 415 Compensation for a Plan Year is the compensation actually paid or made available during such Plan Year. In no event may a Participant’s Section 415 Compensation exceed the two hundred thousand dollar ($200,000) limitation imposed by Section 401(a)(17) of the Code, as adjusted as provided therein.

          (b) For Plan Years beginning on and after January 1, 2008, the term “Section 415 Compensation” shall also include compensation paid by the later of 2 1/2 months after a Participant’s severance from employment with the Group or the end of the Plan Year that includes the date of the Participant’s severance from employment with the Group if the payment is: (i) regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and absent a severance from employment, the payments would have been paid to the Participant while the Participant continued in employment with the Group; or (ii) for unused accrued bona fide sick, vacation or other leave that the Participant would have been able to use if employment with the Group had continued.

          (c) Any payments not described in Sections 1.72(a) and 1.72(b) hereof shall not be considered “Section 415 Compensation” if paid after severance from employment with the Group, even if they are paid by the later of 2 1/2 months after the date of severance from employment or the end of the Plan Year that includes the date of severance from employment, except (i) payments to an individual who does not currently perform services for the Group by reason of qualified military service (within the meaning of Section 414(u)(1) of the Code) to the extent the payments do not exceed the amounts the

19

individual would have received if the individual had continued to perform services for the Group rather than entering qualified military service, or (ii) compensation paid to a Participant who is permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code); provided that salary continuation applies to all Participants who are permanently and totally disabled for a fixed or determinable period or the Participant was not a Highly Compensated Employee immediately before becoming disabled.

     1.73 “Severance from Service Date” means the earlier of:

          (a) the date a person terminates his employment with the Group by reason of quitting, retirement, death or discharge, or

          (b) the date twelve (12) consecutive months after the date a person remains absent from service with the Group (with or without pay) for any reason other than quitting, retirement, death or discharge.

     1.74 “Stock Fund” means the Temple-Inland Stock Fund, the Guaranty Stock Fund or the Forestar Stock Fund, as applicable.

     1.75 “Subaccounts” means the subaccounts established for each Participant that account for the investment of each Participant’s Accounts in the funds described in Sections 7.1, 7.2 and 10.4 hereof, and for such other amounts as the Plan Administrator deems it necessary or appropriate to establish a subaccount.

     1.76 “Temple-Inland Common Stock” means common stock, par value one dollar ($1.00) per share, of Temple-Inland Inc., a Delaware Corporation.

     1.77 “Temple-Inland Savings Plan” means the Temple-Inland Salaried Savings Plan, the Temple-Inland Nonsalaried Savings Plan, the Temple-Inland Savings Plan for Union Employees, the El Morro Corrugated Box Corporation Savings and Investment Plan or the Joint Venture Master 401(k) Plan, as applicable, each maintained by TIN Inc.

     1.78 “Temple-Inland Stock Fund” means common stock, par value one dollar ($1.00) per share, of Temple-Inland Inc., a Delaware Corporation.

     1.79 “Trust Agreement” means the agreement between the Company and the Trustee, as provided for in Article 12 hereof, as the same may hereafter be amended from time to time.

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     1.80 “Trust Fund” means all the assets at any time held under the Plan by the Trustee as provided for in Article 12 hereof.

     1.81 “Trustee” means the trustee or trustees selected by the Plan Administrator which may at any time be acting as Trustee under the Trust Agreement.

     1.82 “Valuation Date” means (a) the last day of each calendar year that the New York Stock Exchange is open for trading, and (b) except as otherwise determined by either the Plan Administrator or the Trustee in its sole discretion and either with or without prior notice to Participants, each other day (or portion thereof) that the New York Stock Exchange is open for trading.

ARTICLE 2

ELIGIBILITY AND PARTICIPATION

     2.1 Participation.

          (a) Each Employee who was a Participant in this Plan or the Temple-Inland Savings Plan as of December 27, 2007, and is employed by an Employer on December 28, 2007, shall be a Participant in this Plan as of December 28, 2007.

          (b) Each Employee who was a Participant in this Plan as of December 31, 2007, and is employed by an Employer on January 1, 2008, shall be a Participant as of January 1, 2008.

          (c) Each Employee not described in Section 2.1(b) hereof shall become a Participant as soon as practicable after the earlier of (i) the Employee’s providing Notice to the Plan Administrator pursuant to Section 2.2 hereof to elect to have Before Tax Contributions made on the Employee’s behalf in a specified percentage of Compensation, or (ii) in the case of an Automatic Contribution Employee, the expiration of thirty (30) days from the later of (A) the Employee’s most recent date of hire as an Employee, or (B) the date the notice described in Section 2.1(e) hereof is provided to the Employee, unless the Employee has elected, by Notice to the Plan Administrator, not to have Before Tax Contributions made on his behalf; provided, however, that in no event shall an Employee become a Participant unless he is an Employee as of the date he would otherwise become a Participant.

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          (d) Each Employee who does not become a Participant under Section 2.1(a), (b) or (c) hereof shall become a Participant as of the date on which his Employer makes a Profit Sharing Contribution, if any, on his behalf pursuant to Section 4.2 hereof.

          (e) Within a reasonable period of time before each Plan Year beginning on or after January 1, 2008, the Plan Administrator shall provide each Employee a written notice of the Automatic Contribution Arrangement hereunder, which notice shall include the following information: (i) the Employee’s rights and obligations under the Automatic Contribution Arrangement, (ii) the level of Before Tax Contributions that will be made on the Employee’s behalf if the Employee does not make an affirmative election to make Before Tax Contributions, (iii) the Employee’s right to elect not to have Before Tax Contributions made on the Employee’s behalf (or to elect to have Before Tax Contributions made in a different percentage of Compensation than provided in Sections 2.2(b) and 2.2(c) hereof, (iv) how contributions made by and on the Employee’s behalf under the Automatic Contribution Arrangement will be invested in the absence of an investment election by the Employee, (v) the reasonable period of time after receipt of such notice and before the Employee’s first Before Tax Contribution for such Plan Year under the Automatic Contribution Arrangement during which the Employee may make contribution and investment elections hereunder, and (vi) the Employee’s right to withdraw Before Tax Contributions made under the Automatic Contribution Arrangement pursuant to Section 8.6 hereof, and the procedures to elect such a withdrawal.

          (f) Each Participant shall (i) provide Notice to the Plan Administrator designating a beneficiary who shall receive any benefits payable pursuant to Section 9.1 hereof in the event of the death of the Participant, and (ii) agree to the terms of the Plan. A Participant may designate one or more persons as beneficiary; provided, however, that if more than one (1) person is named, the Participant shall indicate the shares and precedence of each person. A married Participant’s spouse shall be deemed to be his beneficiary regardless of any contrary designation on file or later filed with the Plan Administrator, unless the spouse consents (acknowledging the effect of such consent) to the designation of a beneficiary other than the spouse and such consent is witnessed by a notary public or the Plan Administrator. A Participant may change his beneficiary from time to time by Notice to the Plan Administrator but only with the written consent of his spouse (witnessed by the Plan Administrator or a notary public), if he has a spouse at such

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time. The consent of a previously designated nonspouse beneficiary shall not be required in any case. In the event the Participant fails to effectively designate a beneficiary as to any distribution, such distribution shall be made to such deceased Participant’s spouse (as set forth above) if living, if not, then to such deceased Participant’s estate.

          (g) Notwithstanding the foregoing provisions of this Section 2.1, in no event shall (i) an Employee be eligible to become a Participant in this Plan to the extent that becoming a Participant would cause any plan maintained or formerly maintained by the Group to fail to satisfy the requirements of Treasury Regulations Section 1.401(k)-1(d), or (ii) any person who is a leased employee (including a Section 414(n) Leased Employee), a consultant or any other person who is not classified by an Employer as an employee (not taking into account any retroactive reclassification of any person as an Employee) be eligible to become a Participant in this Plan.

     2.2 Enrollment as a Contributing Participant.

          (a) An Employee who is a Participant or who is eligible to become a Participant may elect to become a Contributing Participant by providing Notice to the Plan Administrator authorizing the deduction by his Employer of Before Tax Contributions from his Compensation and specifying the Funds in which his Before Tax Contributions and other amounts shall be invested, subject to the terms of Article 7 hereof.

          (b) Notwithstanding anything herein to the contrary, an Automatic Contribution Participant shall be deemed to have elected to contribute to the Plan as Before Tax Contributions three percent (3%) of the Employee’s Compensation for the period beginning on the date on which the Participant first becomes an Automatic Contribution Participant and ending on the last day of the Plan Year next following the Plan Year in which the Participant first becomes an Automatic Contribution Participant (the “Initial Contribution Period.). An Automatic Contribution Participant may elect to change or suspend his contribution election at any time in accordance with Article 3 hereof.

          (c) The percentage of Compensation that an Automatic Increase Participant contributes to the Plan as Before Tax Contributions shall be increased by one percent (1%) effective as of the first payroll period beginning on or after January 1 of each Plan Year beginning after the expiration of the Participant’s Initial Contribution Period; provided, however, that no increase with respect to an

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Automatic Increase Participant shall occur pursuant to this Section 2.2(c) if the percentage of Compensation contributed to the Plan by the Automatic Increase Participant as Before Tax Contributions would exceed ten percent (10%). Unless an Automatic Contribution Participant elects otherwise by providing Notice to the Plan Administrator, the Automatic Contribution Participant shall be treated as an Automatic Increase Participant immediately upon becoming an Automatic Contribution Participant. A Participant who is not an Automatic Contribution Participant but who has elected to become an Automatic Increase Participant shall become an Automatic Increase Participant as soon as practicable after the Plan Administrator receives Notice from the Participant of such election. An Automatic Increase Participant may elect to cease to be an Automatic Increase Participant at any time by providing Notice to the Plan Administrator, and such election shall be effective as soon as practicable after the Plan Administrator’s receipt of such Notice. Notwithstanding the foregoing, the rate of an Automatic Contribution Participant’s Before Tax Contribution on January 1, 2008, shall not be less than the rate in effect as of December 31, 2007, unless the Automatic Contribution Participant elects a lower rate.

          (d) The authorizations, designations and elections made pursuant to Section 2.1 hereof and this Section 2.2 shall be deemed to be continuing as to current and succeeding Plan Years until changed by prior Notice to the Plan Administrator.

          (e) In the case of an Employee who becomes an Employee and a Participant in this Plan on December 28, 2007, and who immediately prior to becoming a Participant was both employed by Temple-Inland Inc. or any member of the “Temple-Inland Group” (within the meaning of the Employee Matters Agreement) and was a participant in the Temple-Inland Savings Plan, such Participant’s (i) affirmative elections under the applicable foregoing plan with respect to (A) making before tax contributions, and (B) the investment of contributions made under the applicable foregoing plan on the Participant’s behalf, and (ii) designation of a beneficiary (or beneficiaries) under the applicable foregoing plan, shall be treated as if made under, and with respect to, this Plan and shall continue in effect under this Plan until changed in accordance with the terms of this Plan.

          (f) In the case of an Employee who becomes a Participant in this Plan and who immediately prior to becoming a Participant was both employed by a member of the Group and was a participant in a Merged Plan, and, if the Plan Administrator so determines, such Participant’s (i) affirmative

24

elections under the Merged Plan with respect to (A) making before tax contributions, and (B) the investment of contributions made under the Merged Plan on the Participant’s behalf, and (ii) designation of a beneficiary (or beneficiaries) under the Merged Plan shall be treated as if made under, and with respect to, this Plan and shall continue in effect under this Plan until changed in accordance with the terms of this Plan.

     2.3 No Participation by Non-Covered Employees.

          (a) Notwithstanding any provision of this Plan to the contrary, an Inactive Participant shall not be eligible to make Before Tax Contributions under Article 3 hereof or be entitled to any Employer Matching Contributions or Profit Sharing Contributions under Article 4 hereof.

          (b) If an Inactive Participant again becomes an Employee, he (i) may elect to resume making Before Tax Contributions by giving prior Notice to the Plan Administrator, and such

          election shall be effective as soon as practicable after the Plan Administrator’s receipt of such election, and (ii) shall be eligible to be allocated Employer Matching Contributions and Profit Sharing Contributions, subject to, and in accordance with, the terms of Article 4 hereof.

          (c) Notwithstanding any provision of this Plan to the contrary, an Employee who has rights under Chapter 43 of Title 38, United States Code, resulting from qualified military service, shall be credited with service and entitled to make Before Tax Contributions to this Plan and to be allocated Employer Matching Contributions and Profit Sharing Contributions to the extent required by applicable law and Section 414(u) of the Code.

ARTICLE 3

PARTICIPANT CONTRIBUTIONS

     3.1 Before Tax Contributions. Each Participant may elect to make Before Tax Contributions to the Plan of any whole percentage of his Compensation for each payroll period. The minimum amount of Before Tax Contributions with respect to each payroll period shall be one percent (1%), and, except as permitted pursuant to Section 3.6(f) hereof, the maximum amount shall be fifty percent (50%).

     3.2 Suspension of Contributions. A Participant may voluntarily suspend his Before Tax Contributions by giving prior Notice to the Plan Administrator, and such suspension shall be effective as soon as practicable after the Plan Administrator’s receipt of such Notice. A Participant may resume

25

making Before Tax Contributions by giving prior Notice to the Plan Administrator, and such election shall be effective as soon as practicable after the Plan Administrator’s receipt of such election.

     3.3 Changes in Contribution Elections.

     A Participant may increase or decrease, subject to Section 3.1 hereof, the amount of his Before Tax Contributions by giving prior Notice to the Plan Administrator. Such changes in Before Tax Contributions shall become effective as soon as practicable after receipt of Notice by the Plan Administrator.

     3.4 Payment of Contributions.

          (a) Participants’ Before Tax Contributions shall be transferred to the Trustee under the Plan on the earliest date that such amounts can reasonably be segregated from the Employer’s general assets, but in no event later than the fifteenth (15th) day of the calendar month following the month in which the Before Tax Contributions withheld would otherwise have been paid to the Participant. In no event shall an Employer transfer a Before Tax Contribution to the Trustee on behalf of a Participant prior to the date the Participant performs the services with respect to which the Before Tax Contribution is being made (or the date the Compensation for such services would be currently available, if earlier) unless such pre-funding is to accommodate a bona fide administrative concern and is not for the principal purpose of accelerating deductions for federal income tax purposes.

          (b) Participants’ Before Tax Contributions shall be treated under the Plan, ERISA and the Code as nonforfeitable Employer contributions. Before Tax Contributions shall not be required to be made from the current or accumulated profits of an Employer.

     3.5 No Make-Up of Contributions. Subject to Section 3.6(f) hereof, no Participant who fails to make the maximum amount of Before Tax Contributions permitted under Section 3.1 hereof, or who voluntarily suspends his Before Tax Contributions in accordance with Section 3.2 hereof, shall be permitted to make up such contributions in any subsequent payroll period.

     3.6 Limitations on Before Tax Contributions.

          (a) No Participant shall be permitted to have Before Tax Contributions made to the Plan during any Plan Year to the extent such contributions, plus any elective deferrals under any other tax-qualified plan, exceed the dollar limit imposed under Section 402(g) of the Code, as adjusted in accordance therewith, except to the extent permitted under Section 3.6(f) hereof. A Participant shall promptly notify

26

the Plan Administrator if such limitation is exceeded and the amount of such excess, plus gain or loss allocable thereto for the Plan Year, and the period beginning on the day after the close of such Plan Year and ending seven (7) days prior to the date of distribution of excess contributions for such Plan Year (the “Gap Period”), shall be distributed to such Participant within three and one-half (3¹/2) months after the close of the Plan Year during which such excess contributions were made or as of such later date that is permissible under applicable regulations as may be determined by the Plan Administrator. Except as otherwise determined by the Plan Administrator, the income allocable to a Participant’s excess Before Tax Contributions for a Plan Year, and the Gap Period for such Plan Year, shall be determined by multiplying the total investment income or loss (including dividends, interest, realized gains or losses, and unrealized appreciation or depreciation) allocated to the Participant’s Before Tax Contributions Account for such Plan Year and Gap Period by a fraction:

               (i) the numerator of which is the amount of excess Before Tax Contributions allocated to the Employee’s Before Tax Contributions Account for the Plan Year; and

               (ii) the denominator of which is the Employee’s total Before Tax Contributions Account balance as of the beginning of the Plan Year increased by the total of the Employee’s Before Tax Contributions for the Plan Year and the Gap Period for such Plan Year.

     (b) If for any Plan Year beginning before January 1, 2008, the Actual Deferral Percentage for Highly Compensated Employees would exceed the greater of: (i) the Actual Deferral Percentage of the Non-Highly Compensated Employees for the preceding Plan Year multiplied by one and one-fourth (1.25), or (ii) the lesser of: (A) two percent (2%) plus the Actual Deferral Percentage of Non-Highly Compensated Employees for the preceding Plan Year, or (B) the Actual Deferral Percentage of Non-Highly Compensated Employees for the preceding Plan Year multiplied by two (2), the Before Tax Contributions of the Highly Compensated Employees shall be reduced as set forth in Sections 3.6(c) and 3.6(d) hereof. Notwithstanding the foregoing, the Actual Deferral Percentage for Non-Highly Compensated Employees shall be determined by using the Non-Highly Compensated Employees’ Compensation and the Before Tax Contributions and Qualified Non-elective Contributions made on behalf of such Employees for the current Plan Year rather than the preceding Plan Year, as permitted by, and in accordance with, Section 401(k)(3) of the Code.

27

          (c) In order to determine the amount by which Highly Compensated Employees’ Before Tax Contributions must be reduced pursuant to Section 3.6(b) hereof and identifying the Highly Compensated Employees whose Before Tax Contributions shall be reduced, the Plan Administrator shall:

               (i) Determine the maximum Actual Deferral Percentage for Highly Compensated Employees permitted under Section 3.6(b) hereof, if applicable;

               (ii) Identify the Highly Compensated Employees with Actual Deferral Percentages in excess of the maximum percentage amount determined pursuant to the preceding clause (i);

               (iii) Determine the dollar amount of the reduction in each such Highly Compensated Employee’s Before Tax Contributions that would be required so that the Actual Deferral Percentage of Highly Compensated Employees would not exceed the percentage limit determined pursuant to the preceding clause (i), with the dollar amount of such reductions being determined under a process whereby the Actual Deferral Percentage of the Highly Compensated Employee(s) with the highest Actual Deferral Percentage(s) is reduced so that it is equal to that of the Highly Compensated Employee(s) with the next highest Actual Deferral Percentage and repeating such process until the Actual Deferral Percentage of Highly Compensated Employees does not exceed the limit prescribed by Section 3.6(b) hereof, if applicable; and

               (iv) Cause Before Tax Contributions equal to the total dollar amount of Before Tax Contributions determined pursuant to the preceding clause (iii) (the “Excess Deferrals”) to be refunded in accordance with Sections 3.6(d) and 3.6(e) hereof to the Highly Compensated Employees identified therein.

          (d) The Before Tax Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Before Tax Contributions shall be reduced by the amount required to cause the Before Tax Contributions of such Highly Compensated Employee(s) to be equal to the Before Tax Contributions of the Highly Compensated Employee(s) who have the next highest dollar amount of Before Tax Contributions; provided, however, if a lesser reduction would equal the amount of Excess Deferrals, the lesser reduction shall be made. The process provided for by the by the preceding sentence shall be repeated until the total amount of the reductions equals the amount of Excess Deferrals. If the Actual Deferral Percentage of any Employee who is a Highly Compensated Employee for a Plan Year is

28

determined taking into consideration before tax contributions allocated to his accounts under two (2) or more plans or arrangements described in Section 401(k) of the Code that are maintained by the Group, as described in Section 1.3 hereof, and the before tax contributions of the Highly Compensated Employee must be reduced to satisfy the requirements of Section 401(k)(3) of the Code, only the before-tax contributions made to the plan being corrected shall be reduced.

          (e) Any Before Tax Contributions in excess of the amount permitted under this Section 3.6, along with any gain or loss allocable thereto for the Plan Year and the Gap Period (as defined in Section 3.6(a) hereof) for such Plan Year, shall be refunded to the Highly Compensated Employees identified in Section 3.6(d) hereof within two and one-half (2¹/2) months after the close of the Plan Year or as of such later date as may be determined by the Plan Administrator, provided that such later date shall not be later than the close of the Plan Year following the Plan Year in which the excess amounts were contributed. Allocable gain or loss shall be determined in the same manner as described in the last sentence of Section 3.6(a) hereof. Notwithstanding the foregoing, the Plan Administrator may, in lieu of refunding all or a portion of excess Before Tax Contributions to the Highly Compensated Employees, recharacterize all or a portion of such excess Before Tax Contributions as After Tax Contributions within two and one-half (2¹/2) months of the close of the Plan Year in which the excess contributions were made. Any such recharacterization shall comply with applicable regulations under the Code. Employer Matching Contributions that are attributable to Before Tax Contributions distributed pursuant to Section 3.6(a) or this Section 3.6(e) shall be forfeited and used to reduce future Employer contributions. The amount of Before Tax Contributions to be recharacterized as After Tax Contributions or refunded to any Highly Compensated Employee shall be reduced by the amount of any Before Tax Contributions previously distributed to the Employee for such Plan Year.

          (f) Effective for Plan Years beginning on and after January 1, 2002, Participants who are eligible to make Before Tax Contributions hereunder and who have attained age 50 before the close of the Plan Year shall be eligible to make “catch-up contributions” in accordance with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Sections 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the

29

requirements of Sections 401(k)(3), 410(b) or 416 of the Code, as applicable, by reason of Participants making such catch-up contributions.

          (g) The Plan Administrator may at any time, in its sole discretion, and upon notice to the affected Participants, unilaterally reduce, on a prospective basis, the maximum percentage of Compensation that Highly Compensated Employees may make as Before Tax Contributions to the Plan.

          (h) Notwithstanding any other provision of the Plan, effective for Plan Years beginning after December 31, 2007, (i) the Automatic Contribution Arrangement provisions of Sections 2.1(c) and (e), 2.2(b) and (c) and 4.1 hereof are intended to constitute a “qualified automatic contribution arrangement” within the meaning of Treasury Regulations Section 1.401(k)-3(j)(i), and satisfy the Actual Deferral Percentage and Average Contribution Percentage tests of Section 401(k) and (m), respectively, of the Code, and (ii) the Actual Deferral Percentage provisions of Sections 3.6(b), (c), (d), (e) and (g) hereof and the Qualified Nonelective Contribution provisions of Section 4.2 hereof, shall not be effective.

     3.7 Rollovers. Employees may, subject to such rules as may be prescribed by the Plan Administrator, roll over all or a portion of (a) an eligible rollover distribution (within the meaning of Section 402(c)(4) of the Code), (b) a rollover amount (within the meaning of Section 403(a)(4) of the Code), or (c) a rollover contribution (within the meaning of Section 408(d)(3)(A)(ii) of the Code) to this Plan, (each, a “Rollover Amount”); provided, however, that (x) in no event may any “after-tax” employee contributions be rolled over into this Plan, and (y) Rollover Amounts may be transferred to the Plan only in the form of cash and/or, in the discretion of the Plan Administrator, one or more participant loan notes. If, after an amount has been rolled over to this Plan, the Plan Administrator determines that such amount was not a valid Rollover Amount, the Plan Administrator shall distribute such amount to the applicable Participant, together with earnings attributable thereto, within a reasonable period after such determination.

ARTICLE 4

EMPLOYER CONTRIBUTIONS

     4.1 Matching Contributions.

     (a) Subject to Sections 4.5 and 4.6 hereof, each Employer shall make Employer Matching Contributions to the Plan with respect to each Participant who is an Employee of that Employer in an amount equal to two hundred percent (200%) of the first two percent (2%) of each such Participant’s

30

Compensation contributed to the Plan as Before Tax Contributions each payroll period plus an amount equal to one hundred percent (100%) of the next two percent (2%) of each such Participant’s Compensation contributed to the Plan as Before Tax Contributions each payroll period. Employer Matching Contributions made pursuant to this Section 4.1(a) shall be transferred to the Trustee under the Plan concurrently with the delivery of the Participants’ Before Tax Contributions and shall be allocated to the Accounts of the Participants on whose behalf they were made upon receipt by the Trustee (or as soon as practicable thereafter).

          (b) Subject to Sections 4.5 and 4.6 hereof, in the event that the total amount of Employer Matching Contributions made to the Plan with respect to a Participant for a Plan Year beginning before January 1, 2008, is less than an amount equal to the sum of (i) two hundred percent (200%) of the first two percent (2%) of such Participant’s Compensation contributed to the Plan as Before Tax Contributions for such Plan Year, and (ii) one hundred percent (100%) of the next two percent (2%) of such Participant’s Compensation contributed to the Plan as Before Tax Contributions for such Plan Year (the sum of (a) and (b) being the “Total Match”), the Employer shall make an additional Employer Matching Contribution to the Plan with respect to the Participant for such Plan Year equal to the difference between (x) the Total Match for such Plan Year, and (y) the amount of Employer Matching Contributions made to the Plan on behalf of the Participant pursuant to Section 4.1(a) hereof for such Plan Year (such additional contribution being a “True-Up Contribution”). Employer Matching Contributions made pursuant to this Section 4.1(b) shall be transferred to the Trustee not later than the date required under the Code in order for such contributions to be deductible for such Plan Year for federal income tax purposes and shall be allocated to the Accounts of the Participants on whose behalf they were made upon receipt by the Trustee (or as soon as practicable thereafter). Notwithstanding the foregoing, an Employer may, in its discretion, calculate and contribute to the Plan True-Up Contributions more frequently than on a Plan Year basis. The Employer shall not make any True-Up Contributions for any Plan Year beginning after December 31, 2007.

          (c) An Employer shall transfer to the Trustee an Employer Matching Contribution made with respect to a Before Tax Contribution made during a Plan Year quarter not later than the last day of the immediately following Plan Year quarter. In no event shall an Employer transfer an Employer Matching Contribution made pursuant to this Section 4.1 to the Trustee on behalf of a Participant prior to

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the date the Participant performs the services with respect to which the Employer Matching Contribution is being made (or the date the Compensation for such services would be currently available, if earlier) unless such pre-funding is to accommodate a bona fide administrative concern and is not for the principal purpose of accelerating deductions for federal income tax purposes.

     4.2 Profit Sharing Contributions. Subject to the restrictions imposed by Section 4.5 hereof, and in addition to the contributions required by Section 4.1 hereof, each Employer, by action of its Board of Directors, may elect to make a discretionary Profit Sharing Contribution for a Plan Year in an amount determined by the Employer’s Board of Directors, up to two percent (2%) of the aggregate Compensation of its Eligible Employees, to be allocated among the Profit Sharing Contributions Accounts of the Employer’s Eligible Employees for such Plan Year. An Eligible Employee’s share of any Profit Sharing Contribution for a Plan Year shall be equal to the Eligible Employee’s Compensation for such Plan Year multiplied by a fraction, the numerator of which is the Eligible Employee’s Compensation for such Plan Year, and the denominator of which is the total Compensation of all the Employer’s Eligible Employees for such Plan Year. Any election by the Employer’s Board of Directors shall be evidenced by a resolution adopted by the Board of Directors on or before December 31 of the Plan Year for which any such Profit Sharing Contribution is to be made. Eligible Employees shall be promptly notified of the amount of any Profit Sharing Contribution made on their behalf for any Plan Year by any reasonable form of communication that the Plan Administrator considers convenient. Any such Profit Sharing Contribution may be transferred to the Trustee under the Plan, without interest, at any time prior to the required filing date, including any extensions of time granted by the Internal Revenue Service, of the Employer’s federal income tax return for that Plan Year and shall be immediately allocated among the Profit Sharing Contributions Accounts of the Eligible Employees on whose behalf it was made.

     4.3 Qualified Nonelective Contributions. In the discretion of the Company, the Employers may make contributions to the Plan that are “qualified nonelective contributions” (within the meaning of Section 401(m)(4)(C) of the Code). Such contributions shall be allocated to Participants who are Non-Highly Compensated Employees in proportion to their Compensation for the applicable Plan Year in such amounts, at such times and as of such dates as shall be determined by the Employers in accordance with

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Treasury Regulations Section 1.401(k)-2(a)(6). The provisions of this Section 4.3 shall not be effective for Plan Years beginning after December 31, 2007.

     4.4 Reinstatement of Forfeited Account Balances; Payment of Administrative Expenses.

          (a) Each Employer shall contribute to the Plan any amount necessary to reinstate any Company Retirement Contributions, Employer Matching Contributions, and Profit Sharing Contributions previously forfeited pursuant to Section 6.4 hereof.

          (b) To the extent not paid by the Trustee from the Trust Fund, each Employer shall pay its pro rata share of all administrative expenses of the Plan and of all fees and retainers of the Plan’s Trustee, consultants, auditors and counsel (who may, but need not, be counsel to the Company and to the Trustee). All expenses directly relating to the investments of the Trust Fund such as taxes, commissions, registration charges, etc. shall be paid by the Trustee from the Trust Fund.

     4.5 Limitations on Contributions. The limitations imposed by Section 415 of the Code are hereby incorporated by reference. For purposes of applying the limitations imposed by Section 415 of the Code, “compensation” as referred to therein, shall mean Section 415 Compensation.

     4.6 Limitations on After Tax Contributions and Employer Matching Contributions.

          (a) If for any Plan Year beginning before January 1, 2008, the Average Contribution Percentage of Highly Compensated Employees for any Plan Year would exceed the greater of: (i) the Average Contribution Percentage of Non-Highly Compensated Employees for the preceding Plan Year multiplied by one and one-fourth (1.25), or (ii) the lesser of: (A) two percent (2%) plus the Average Contribution Percentage of Non-Highly Compensated Employees for the preceding Plan Year, or (B) the Average Contribution Percentage of Non-Highly Compensated Employees for the preceding Plan Year multiplied by two (2), the After Tax Contributions and/or Employer Matching Contributions of the Highly Compensated Employees shall be reduced as set forth in Sections 4.6(b) and 4.6(c) hereof. Notwithstanding anything herein, the Average Contribution Percentage for Non-Highly Compensated Employees shall be determined by using the Non-Highly Compensated Employees’ Compensation, After Tax Contributions and Employer Matching Contributions made on their behalf for the current Plan Year rather than the preceding Plan Year, as permitted by, and in accordance with, Section 401(m)(2) of the Code.

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          (b) In order to determine the amount by which Highly Compensated Employees’ After Tax Contributions and/or Employer Matching Contributions must be reduced and identifying the Highly Compensated Employees whose After Tax Contribution and/or Employer Matching Contributions shall be reduced, the Plan Administrator shall:

               (i) Determine the maximum Average Contribution Percentage for Highly Compensated Employees permitted under Section 4.6(a) hereof;

               (ii) Identify the Highly Compensated Employees with Average Contribution Percentages in excess of the maximum percentage amount determined pursuant to the preceding clause (i);

               (iii) Determine the dollar amount of the reduction in each such Highly Compensated Employee’s After Tax Contributions and/or Employer Matching Contributions that would be required so that the Average Contribution Percentage of Highly Compensated Employees would not exceed the percentage limit determined pursuant to the preceding clause (i), with the dollar amount of such reductions being determined under a process whereby the Average Contribution Percentage of the Highly Compensated Employee(s) with the highest Average Contribution Percentage(s) is reduced so that it is equal to that of the Highly Compensated Employee(s) with the next highest Average Contribution Percentage and repeating such process until the Average Contribution Percentage of Highly Compensated Employees does not exceed the limits prescribed by Section 4.6(a) hereof; and

               (iv) Cause After Tax Contributions and/or Employer Matching Contributions equal to the total dollar amount of After Tax Contributions and/or Employer Matching Contributions determined pursuant to the preceding clause (iii) (the “Excess Contributions”) to be refunded in accordance with Sections 4.6(c) and 4.6(d) hereof to the Highly Compensated Employees identified therein.

          (c) After Tax Contributions and/or Employer Matching Contributions of the Highly Compensated Employee(s) with the highest total amount of After Tax Contributions and/or Employer Matching Contributions shall be reduced by the amount required to cause the After Tax Contributions and/or Employer Matching Contributions of such Highly Compensated Employee(s) to be equal to the After Tax Contributions and/or Employer Matching Contributions of the Highly Compensated Employee(s)

34

who have the next highest total amount of After Tax Contributions and/or Employer Matching Contributions; provided, however, if a lesser reduction would equal the amount of Excess Contributions, the lesser reduction shall be made. The process provided for by the preceding sentence shall be repeated until the total amount of the reductions equals the amount of Excess Contributions. For purposes of the foregoing, reductions made to a Highly Compensated Employee’s After Tax Contributions and/or Employer Matching Contributions pursuant to this Section 4.6(c) shall be made in the following order: (i) After Tax Contributions with respect to which no Employer Matching Contributions were made; (ii) other After Tax Contributions and related Employer Matching Contributions; and (iii) other Employer Matching Contributions. If the Average Contribution Percentage of any Employee who is a Highly Compensated Employee for a Plan Year is determined taking into consideration employee after tax contributions and/or employer matching contributions allocated to his accounts under two (2) or more plans or arrangements described in Section 401(m) of the Code that are maintained by the Group, pursuant to Section 1.13 hereof, and the employee after tax contributions and/or employer matching contributions of the Highly Compensated Employee must be reduced to satisfy the requirements of Section 401(m) of the Code, only the employee after-tax contributions and/or employer matching contributions made to the plan being corrected shall be reduced.

          (d) After Tax Contributions and any vested Employer Matching Contributions in excess of the amount permitted under this Section 4.6, along with any gain or loss allocable thereto for the Plan Year and the Gap Period (as defined in Section 3.6(a) hereof for such Plan Year, shall be distributed to the Highly Compensated Employees identified in Section 4.6(c) hereof within two and one-half (2¹/2) months after the close of the relevant Plan Year (or as of such later date as may be determined by the Plan Administrator, provided that such later date shall not be later than the close of the Plan Year following the Plan Year in which the excess amounts were contributed). The income allocable for a Plan Year, plus the Gap Period (as defined in Section 3.6(a) hereof) for such Plan Year, to a Highly Compensated Employee’s excess After Tax Contributions and/or Employer Matching Contributions shall be determined by multiplying the total investment income or loss (including dividends, interest, realized gains or losses, and unrealized appreciation or depreciation) allocated to the Employee’s After Tax Contributions Account and/or Employer Matching Contributions Account for such Plan Year and Gap Period by a fraction:

35

               (i) the numerator of which is the amount of excess After Tax Contributions and/or Employer Matching Contributions allocated to the Employee’s After Tax Contributions Account and/or Employer Matching Contributions Account for the Plan Year; and

               (ii) the denominator of which is the Employee’s total After Tax Contributions Account balance and/or Employer Matching Contributions Account balance as of the beginning of the Plan Year increased by the total of the Employee’s After Tax Contributions and/or Employer Matching Contributions for the Plan Year and the Gap Period for such Plan Year.

          (e) Nonvested Employer Matching Contributions that are attributable to After Tax Contributions that are distributed and any nonvested Employer Matching Contribution that are otherwise reduced pursuant to this Section 4.6 (together with any allocable gain or loss, as determined in accordance with the provisions of Section 4.6(d) hereof) shall be forfeited within two and one-half (2¹/2) months after the close of the relevant Plan Year (or as of such later date as may be determined by the Plan Administrator, provided that such later date shall not be later than the close of the Plan Year following the Plan Year in which the excess amounts were contributed) and used to reduce future Employer contributions and shall not be considered a contribution for any purpose of the Plan, except to the extent required by applicable regulations.

          (f) The Plan Administrator at any time, in its sole discretion, and upon notice to the affected Participants, may unilaterally reduce, on a prospective basis, the maximum percentage of Compensation that Highly Compensated Employees may make as After Tax Contributions to the Plan.

          (g) Notwithstanding any other provision of the Plan, effective for Plan Years beginning after December 31, 2007, (i) the Automatic Contribution Arrangement provisions of Sections 2.1(c) and (e), 2.2(b) and (c) and 4.1 hereof are intended to constitute a “qualified automatic contribution arrangement” described in Treasury Regulations Section 1.401(k)-3(j)(i), and satisfy the Actual Deferral Percentage and Average Contribution Percentage tests of Sections 401(k) and 401(m), respectively, of the Code, and (ii) the Average Contribution Percentage provisions of this Section 4.6 shall not be effective.

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ARTICLE 5

ACCOUNTS

     5.1 Maintenance of Accounts. The Plan Administrator shall maintain for each Participant such Accounts as may be necessary to reflect the portion of the Participant’s interest in the Trust Fund that is attributable to Company Retirement Contributions, Before Tax Contributions, After Tax Contributions, Employer Matching Contributions, Profit Sharing Contributions, Qualified Nonelective Contributions, and Rollover Contributions held by the Trustee on the Participant’s behalf.

     5.2 Adjustments to Accounts; Statements Provided to Participants. As of each Valuation Date, the Accounts of each Participant shall be adjusted to reflect contributions, withdrawals, distributions, income earned or accrued, and increase or decrease in the value of Trust Fund assets since the preceding Valuation Date. Trust Fund earnings or losses shall be allocated proportionately on the basis of Account balances among the respective Accounts and in a fair and equitable manner as determined by the Plan Administrator. The Plan Administrator shall provide each Participant with a statement of his Account balances under the Plan on a quarterly basis.

ARTICLE 6

VESTING AND FORFEITURES

     6.1 Before Tax Contributions, After Tax Contributions, Qualified Nonelective Contributions and Rollover Accounts. The Before Tax Contributions Account, After Tax Contributions Account, Qualified Nonelective Contributions Account and Rollover Account of a Participant shall be fully vested and nonforfeitable at all times.

     6.2 Vesting of Company Retirement Contributions Account. In the case of a Participant who is created with at least one (1) Hour of Service on or after January 1, 2008, the Participant’s Company Retirement Contributions Account shall be fully vested and nonforfeitable upon the first to occur of the following: (a) the Participant’s completion of a Period of Service of two (2) years (three (3) years for the Plan Year beginning on January 1, 2007, and five (5) years for Plan Years beginning before January 1, 2007), (b) the Participant’s attainment of age sixty-five (65) (which shall be the Plan’s normal retirement age) while an employee of the Group, (c) the Participant’s death while employed by the Group, or (d) the

37

Participant’s total disability while an employee of the Group, as certified by either the Social Security Administration or the applicable Group member’s long-term disability carrier.

     6.3 Vesting of Employer Matching Contributions Account and Profit Sharing Contributions Account.

          (a) In the case of a Participant who is credited with at least one (1) Hour of Service on or after January 1, 2008, and who was hired as an Employee prior to such date, the Participant’s Employer Matching Contributions Account shall vest in accordance with the following schedule:

If the Period of Service of the	The Vested Percentage of Employer
Participant, in Months, Equals or	Matching Contributions Account Shall
Exceeds	Be
Twelve (12)	thirty-four (34)
Twenty-four (24)	one hundred (100)

          (b) In the case of a Participant who is credited with at least one (1) Hour of Service on or after January 1, 2008, and who was hired as an Employee prior to such date, the Participant’s Profit Sharing Contributions Account shall vest in accordance with the following schedule:

	The Vested Percentage of Profit
If the Period of Service of the	Sharing Contributions Account
Participant, in Months, Is	Shall Be
Less than twenty-four (24)	zero (0)
At least twenty-four (24)	one hundred (100)

          (c) In the case of a Participant who is hired as an Employee after December 31, 2007, the Participant’s Employer Matching Contributions Account and Profit Sharing Contributions Account, shall vest in accordance with the following schedule:

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	The Vested Percentage of Employer
	Matching Contributions and
If the Period of Service of the	Profit Sharing Contributions
Participant, In Months, Is	Accounts Shall Be
Less than twenty-four (24)	zero (0)
At least twenty-four (24)	one hundred (100)

          (d) For purposes of Sections 6.3(a) through 6.3(c) hereof, in the case of a Participant described in Section 1.57(b)(xi) hereof who was an Employee of Temple-Inland Inc. (including any member of the “Temple-Inland Group” (within the meaning of the Employee Matters Agreement)) or Forestar (including any member of the “Forestar Group” (within the meaning of the Employee Matters Agreement)) on December 28, 2007, and who was continuously employed by Temple-Inland Inc. and/or Forestar for the period beginning on such date and ending on the date of a transfer of employment from Temple-Inland Inc. or Forestar to an Employer, the Participant shall be treated as being hired as an Employee before January 1, 2008.

          (e) Notwithstanding the foregoing provisions of this Section 6.3, the Employer Matching Contributions Account, Company Retirement Contributions and Profit Sharing Contributions of any Participant shall be fully vested and nonforfeitable upon the occurrence of any of the events described in clauses (c) through (d) of Section 6.2 hereof. If a Participant makes a withdrawal or receives a distribution from any of his Accounts (other than a distribution that results in the forfeiture of the nonvested portion of such Account pursuant to Section 6.4 hereof) prior to the date that he has a vested percentage of one hundred percent (100%) with respect to such Account, a separate subaccount shall be established for the balance of such Account as of the time of distribution and the vested portion of such account shall be equal to P(AB+D)-D, where P is the vested percentage at the relevant time; AB is the account balance at the relevant time; D is the amount of the distribution; and the relevant time is the time at which, under the Plan, the vested percentage in the Account cannot increase.

          (f) Notwithstanding the foregoing provisions of this Section 6.3, in the case of a Participant who was a participant in a Merged Plan, the vested percentage of such Participant’s Company Retirement Contributions Account, Employer Matching Contributions Account, Profit Sharing Contributions Account, and/or Subaccounts hereunder shall not be less than if the vesting schedule under

39

the Merged Plan applicable to amounts allocated to such Accounts and/or Subaccounts applied to such Accounts and/or Subaccounts under this Plan, except as otherwise provided in an Appendix hereto and permitted under Section 411(a)(10) of the Code.

     6.4 Forfeitures.

          (a) The nonvested portion (if any) of a Participant’s Accounts shall be forfeited as of the earlier of (i) the last day of the Plan Year in which the Participant receives a distribution of his entire vested Account Balance (provided such distribution is made not later than the end of the second Plan Year following the Plan Year in which the Participant terminates employment with the Group), or (ii) in case of a Participant who does not have a nonforfeitable right to any portion of his Account Balance attributable to Employer contributions (including elective deferrals, within the meaning of Section 402(g) of the Code), the last day of the Plan Year in which the Participant incurs five (5) consecutive One Year Breaks in Service. If a former employee of the Group who has forfeited the nonvested portion of his Accounts later resumes employment by the Group before he has five (5) consecutive One Year Breaks in Service, that portion of his Accounts that was previously forfeited shall be reinstated (unadjusted for Trust Fund earnings and/or losses subsequent to the date of forfeiture) and he shall receive full credit for his previous Periods of Service. The source of the reinstated funds shall first be from the then applicable forfeitures, and to the extent necessary then from Employer contributions as provided in Section 4.4(a) hereof.

          (b) Except to the extent provided in Sections 3.6, 4.5 and 4.6 hereof, forfeitures under the Plan shall result only from a Participant’s termination of employment with the Group before satisfying the vesting requirements of Sections 6.2 and 6.3 hereof. All forfeitures under the Plan shall be used for the following purposes: (i) to reinstate forfeited Accounts pursuant to Section 4.4 hereof; (ii) to reduce administrative expenses of the Plan; and (iii) to reduce the amount of any subsequent contributions of the applicable Employer under Article 4 hereof.

     6.5 Determination of Period of Service. In determining the Period of Service of a Participant for purposes of Sections 6.2 and 6.3 hereof, a Participant who has five (5) or more consecutive One Year Breaks in Service shall receive credit for his Period of Service prior to such One Year Breaks in Service only if he had any nonforfeitable interest in his Account Balance attributable to Employer contributions (including elective deferrals within the meaning of Section 402(g) of the Code) at the time of his separation

40

from service with the Group. Notwithstanding the foregoing, in the case of any Participant who has incurred five (5) consecutive One Year Breaks in Service, his Period of Service after such One Year Breaks in Service shall not be taken into account for determining the vested percentage of his Accounts attributable to periods prior to such five (5) consecutive One Year Breaks in Service.

ARTICLE 7

INVESTMENT OF CONTRIBUTIONS

     7.1 Investment Funds. Contributions made to the Plan shall be invested in accordance with the provisions of this Article 7 (except as provided in Section 10.4 hereof) in such investment funds as the Investment Committee may designate from time-to-time, provided that such investment funds shall include:

          (a) A U.S. Treasury Fund, which shall be provided by such investment vehicle as may be designated by the Investment Committee and

          (b) Effective December 1, 2007, one or more Target Retirement Funds, which shall be provided by such vehicle(s) as may be designated by the Investment Committee.

     7.2 Inactive Funds. The Plan shall maintain a Temple-Inland Stock Fund, a Guaranty Stock Fund and a Forestar Stock Fund. No new contributions may be invested in any of the Stock Funds and no amounts may be transferred into any of the Stock Funds pursuant to Section 7.6 hereof. Effective December 28, 2007, any dividends paid on shares of Common Stock allocated to a Participant’s Stock Fund Subaccount (including any dividends paid prior to, and pending investment on, such date) shall be invested in the same Active Funds in which the Participant’s Before Tax Contributions are then being invested. If the Participant is not making Before Tax Contributions to his Before Tax Contribution Account at that time, such dividends shall be invested in the Target Retirement Fund appropriate for the Participant’s age. If any amounts remain allocated to any Stock Fund as of December 31, 2009, such amounts shall automatically be transferred, as soon as administratively practicable after such date, to and among the same investment funds in which the Participant’s Before Tax Contributions are then being invested. If the Participant is not making Before Tax Contributions to his Before Tax Contribution Account at that time, such amounts shall be automatically transferred to the Target Retirement Fund appropriate for the Participant’s age.

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     7.3 Loan Fund. The Plan shall maintain a Loan Fund which shall consist of promissory notes evidencing Loans made pursuant to Article 10 hereof.

     7.4 Investment of Employer and Participant Contributions. Contributions under the Plan shall be invested as follows:

          (a) Except as provided in Section 7.4(b) hereof, Before Tax Contributions, Employer Matching Contributions, Profit Sharing Contributions, if any, and Rollover Contributions, if any, shall be invested in accordance with the investment elections made by Participants; provided, however, that in the case of any Participant (including, but not limited to, an Automatic Contribution Participant) who does not have in effect a valid investment election, such Participant’s Before Tax Contributions, Employer Matching Contributions, Profit Sharing Contributions, if any, and Rollover Contributions, if any, shall be invested in the Target Retirement Fund appropriate for the Participant’s age. A Participant may direct, in one percent (1%) increments, that the Participant’s Before Tax Contributions, Employer Matching Contributions, Profit Sharing Contributions, if any, and Rollover Contributions, if any, be invested in any of the Active Funds.

          (b) Subject to Section 7.2 hereof, Employer Matching Contributions made prior to December 28, 2007, shall be invested entirely in the Stock Funds unless a Participant elects in accordance with Section 7.6 hereof to transfer all or a portion of such amounts to and among any of the Active Funds.

          (c) Company Retirement Contributions and Qualified Nonelective Contributions made for Plan Years beginning before January 1, 2008, shall be invested entirely in the U.S. Treasury Fund, except to the extent a Participant may elect in accordance with Section 7.6 hereof to transfer all or a portion of such amounts to and among any of the Active Funds.

          (d) Amounts transferred to this Plan from a Merged Plan shall be invested in the Active Funds in accordance with rules specified by the Plan Administrator.

          (e) Subaccounts shall be established for each Participant under each Fund to which contributions on his behalf have been allocated.

     7.5 Change in Investment Elections. A Participant may change his investment election by giving prior Notice to the Plan Administrator in accordance with rules prescribed by the Plan Administrator.

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     7.6 Change in Existing Investments.

          (a) In accordance with rules prescribed by the Plan Administrator, a Participant may transfer all or any portion (in one percent (1%) increments) of his Before Tax Contributions Account, After Tax Contributions Account, Employer Matching Contributions Account, Company Retirement Contributions Account, Profit Sharing Contributions Account, Qualified Nonelective Contributions Account, and Rollover Account invested in any of the Funds to any of the Active Funds.

          (b) Transfers made pursuant to this Section 7.6 will be effected as of (a) the close of business on the Valuation Date that the transfer instruction is received by the Trustee if the instruction is received on or before the Cut-Off Time, or (b) as of the close of business on the next Valuation Date, if the instruction is received after the Cut-Off Time or on a day that is not a Valuation Date. Notwithstanding the foregoing, the Plan Administrator or the Trustee may, in its sole discretion and either with or without prior notice to Participants, suspend, delay, limit or restrict the execution of Participant transfer elections for some or all Participants for such periods as the Plan Administrator or the Trustee may determine in the event of electronic or other communications failures or for purposes of facilitating the merger of a Merged Plan into this Plan. For purposes of this Section 7.6, “Cut-Off Time” means the time prescribed by the Plan Administrator or the Trustee.

     7.7 Voting of Stock Fund Shares (for Periods Prior to January 1, 2010). Before each annual or special meeting of the shareholders of Temple-Inland Inc., the Company or Forestar, each Participant with a Temple-Inland Stock Fund Subaccount, Guaranty Stock Fund Subaccount or Forestar Stock Fund Subaccount shall be furnished a copy of the applicable proxy solicitation material for such meeting, together with a request for his confidential instructions to the Trustee as to how the shares of Common Stock held in the respective Stock Fund then credited to his respective Stock Fund Subaccount (excluding therefrom any fractional shares) as of the most recent practicable Valuation Date prior to such record date for which information is available should be voted. On each matter, the Trustee shall vote:

          (a) shares of Common Stock held in the respective Stock Fund for which it has received timely voting instructions in accordance with such instructions; and

          (b) shares of Common Stock held in the respective Stock Fund for which it has not received timely voting instructions from Participants, or which are pending allocation to Participants’

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Accounts, in the same proportion as it votes those shares of Common Stock held in the respective Stock Fund for which it has received timely voting instructions from Participants on such matter, unless the Trustee determines that doing so would be inconsistent with Title I of ERISA.

     7.8 Tender or Exchange Offers (for Periods Prior to January 1, 2010). Each Participant shall have the right, to the extent of shares of Common Stock allocated to his respective Stock Fund Subaccount as of the most recent practicable Valuation Date prior to such record date for which information is available, to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to such shares. The Trustee shall utilize its best efforts to timely distribute or to cause to be distributed to each Participant such information as will be distributed to shareholders of Temple-Inland Inc., the Company or Forestar in connection with any such tender or exchange offer. Upon timely receipt of such written directions from the Participant, the Trustee shall respond as directed with respect to the shares of Common Stock held in the respective Stock Fund representing all, but not less than all, of the shares over which that Participant has the right of direction. If the Trustee shall not have received timely written directions from any Participant as to the manner in which to respond to such a tender or exchange offer, the Trustee shall not tender or exchange any such shares with respect to which that Participant has the right of direction. Shares of Common Stock held in a Stock Fund by the Trustee pending allocation to Participants’ Accounts shall be tendered or exchanged by the Trustee in the same proportion as are tendered or exchanged those shares with respect to which Participants have the right of direction.

     7.9 Confidentiality (for Periods Prior to January 1, 2010). Information relating to the purchase, holding, and sale of Common Stock, and the directions received by the Trustee from Participants pursuant to Sections 7.7 and 7.8 hereof shall be held by the Trustee in accordance with procedures developed by the Plan Administrator that are designed to safeguard the confidentiality of such information (except to the extent provided therein). The Investment Committee shall be responsible for ensuring that the procedures provided for by Sections 7.7 and 7.8 hereof and this Section 7.9 are sufficient to safeguard the confidentiality of such Participant information, that such procedures are being followed, and that an independent fiduciary is appointed to carry out any activities which the Investment Committee determines involve a potential for undue employer influence upon Participants and beneficiaries with respect to the direct or indirect exercise of shareholder rights.

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ARTICLE 8

WITHDRAWALS DURING EMPLOYMENT

     8.1 Withdrawal of After Tax Contributions. Subject to the provisions of this Article 8, a Participant may elect to withdraw all or any portion of his After Tax Contributions Account.

     8.2 Withdrawals After Age 59¹/2. Subject to the provisions of this Article 8, a Participant who has attained age fifty-nine and a half (59¹/2) and who has withdrawn all amounts available pursuant to Section 8.1 hereof may elect to withdraw all or a portion of his Before Tax Contributions Account, Qualified Nonelective Contributions Account, vested Company Retirement Contributions Account, vested Profit Sharing Contributions Account and vested Employer Matching Contributions Account.

     8.3 Withdrawal of Employer Matching Contributions. Subject to the provisions of this Article 8, a Participant who has withdrawn all amounts available pursuant to Sections 8.1 and 8.2 hereof may withdraw all or any portion of the vested portion of his Employer Matching Contributions Account attributable to Employer Matching Contributions made for Plan Years beginning before January 1, 2008; provided, however, that in the case of a Participant who does not have at least sixty (60) Months of Participation before the date of such withdrawal, Employer Matching Contributions for Plan Years beginning before January 1, 2008, actually made by the Participant’s Employer (or predecessor employer) during the most recent preceding twenty-four (24) months may not be withdrawn, except as permitted by Section 8.2 hereof.

     8.4 Hardship Withdrawals.

          (a) Subject to the provisions of this Article 8, a Participant may withdraw any amount, but not less than five hundred dollars ($500), of his Before Tax Contributions (not including any earnings thereon and reduced by the amount of any prior withdrawal of such contributions) from his Before Tax Contributions Account on account of hardship. For purposes of this Plan a withdrawal is on account of hardship only if:

               (i) the withdrawal is made because of an immediate and heavy financial need of the Participant (as determined in accordance with Section 8.4(b) hereof), and

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               (ii) the withdrawal is necessary to satisfy such financial need (as determined in accordance with Sections 8.4(c) through 8.4(f) hereof).

          (b) For purposes of this Section 8.4, a distribution is on account of an immediate and heavy financial need of a Participant only if the distribution is on account of:

               (i) expenses for (or necessary to obtain) medical care that would be deductible under Section 213(d) of the Code (determined without regard to whether the expenses exceed 7.5% of adjusted gross income); or

               (ii) costs directly related to the purchase of a principal residence of the Participant (excluding mortgage payments); or

               (iii) payment of tuition, related educational fees, and room and board expenses, for up to the next twelve (12) months of post-secondary education for the Participant, or the Participant’s spouse, children, or dependents (as defined in Section 152 of the Code, and for Plan Years beginning on and after January 1, 2005, without regard to Sections 152(b)(1), (b)(2) and (d)(1)(B) of the Code); or

               (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure of the mortgage on his principal residence; or

               (v) payments for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in Section 152 of the Code, and for taxable years beginning on and after January 1, 2005, without regard to Section 152(d)(1)(B) of the Code); or

               (vi) expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Section 165 of the Code (determined without regard to whether the loss exceeds 10% of adjusted gross income); or

               (vii) any other event or occurrence that the Commissioner of the Internal Revenue Service (the “Commissioner”) may designate through the publication of revenue rulings, notices, and other documents of general applicability as constituting immediate and heavy financial need.

         (c) A withdrawal shall be treated as necessary to satisfy an immediate and heavy financial need of a Participant only to the extent that the amount of the withdrawal does not exceed the

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amount required to meet the financial need. For this purpose, the amount required to satisfy the financial need may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal. A withdrawal shall not be treated as necessary to satisfy an immediate and heavy financial need of a Participant to the extent the need may be relieved from other resources reasonably available to the Participant. This determination generally is to be made on the basis of all the relevant facts and circumstances. For this purpose, the Participant’s resources are deemed to include those assets of the Participant’s spouse and minor children (other than property held for a minor child under (i) an irrevocable trust, or (ii) the Uniform Gifts to Minors Act or comparable state law) that are reasonably available to the Participant.

         (d) An immediate and heavy financial need may be treated as not capable of being relieved from other resources reasonable available to a Participant if the Employer relies upon the Participant’s representation (made in writing or such other form as may be prescribed by the Commissioner of Internal Revenue), unless the Employer has actual knowledge to the contrary, that the need cannot reasonably be relieved:

               (i) Through reimbursement or compensation by insurance or otherwise;

               (ii) By liquidation of the Participant’s assets;

               (iii) By cessation of the Participant’s Before Tax Contributions under the Plan;

               (iv) By other currently available distributions under plans maintained by the Group or any other employer; or

               (v) By loans from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need.

          (e) A need cannot be reasonably relieved by one of the actions in Section 8.4(d) hereof if the effect of the action would be to increase the amount of the need.

          (f) Notwithstanding Sections 8.4(c) through 8.4(e) hereof, a Participant must obtain all nontaxable (at the time of the loan(s)) loans under the Plan and all other plans maintained by the Group prior to obtaining a hardship withdrawal hereunder.

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     8.5 Withdrawal of Rollover Accounts. Subject to the provisions of this Article 8, a Participant may withdraw all or a portion of his Rollover Account.

     8.6 Withdrawals of Certain Default Before Tax Contributions.

     An Automatic Contribution Participant may elect, by providing Notice to the Plan Administrator not later than ninety (90) days after the date of the first Before Tax Contribution made on the Participant’s behalf pursuant to Section 2.2(b) hereof, to withdraw from his Before Tax Contributions Account the aggregate amount of Before Tax Contributions made on his behalf with respect to the first payroll period to which Section 2.2(b) hereof applied to the Automatic Contribution Participant through the effective date of the withdrawal election (adjusted for allocable gains and losses to the date of distribution, calculated in accordance with Section 3.6(a) hereof). The date of the first Before Tax Contribution made pursuant to Section 2.2(b) hereof is the date that the Compensation that is subject to the cash or deferred election would otherwise have been included in the Automatic Contribution Participant’s income. The effective date of the Automatic Contribution Participants election shall not be later than the last day of the payroll period that begins after the date the election is made. Employer Matching Contributions made on the withdrawn Before Tax Contributions shall be forfeited. If a Participant elects to withdraw his Before Tax Contributions under this Section 8.6, he shall be deemed to have elected to not make Before Tax Contributions effective as of the effective date of the withdrawal.

     8.7 Application for Withdrawals; Processing. A request for a withdrawal shall be made by a Participant by providing Notice to the Plan Administrator within such period of time as the Plan Administrator may prescribe, subject to Section 8.6 hereof. The Plan Administrator shall evaluate the written application of a Participant for a hardship withdrawal in accordance with a uniform and nondiscriminatory policy applicable to all Participants similarly situated and shall direct the Trustee to make a hardship distribution to such Participant upon a finding of such hardship in accordance with the provisions of Section 8.4 hereof. A Participant making application hereunder for a hardship withdrawal shall provide to the Plan Administrator such information and representations as the Plan Administrator deems necessary or appropriate. Withdrawal request Notices pursuant to this Article 8 that are properly made shall be processed by the Plan Administrator and Trustee as soon as practicable after receipt, subject to complying with the requirements of Section 402(f) of the Code.

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     8.8 Limit on Number of Withdrawals. A Participant may make only one withdrawal under Sections 8.1, 8.2 and 8.3 hereof in any consecutive six (6) month period (except as otherwise permitted under rules adopted and consistently applied in a uniform and nondiscriminatory manner by the Plan Administrator); provided, however, that (a) concurrent withdrawals pursuant to such Sections shall be treated as a single withdrawal, and (b) withdrawals made in connection with a withdrawal pursuant to Section 8.4 hereof shall be permitted without regard to the foregoing restrictions of this Section 8.8 and shall not be taken into account for purposes of this Section 8.8.

     8.9 Effect of Withdrawals on Investments. Withdrawals from a Participant’s Accounts pursuant to this Article 8 shall be charged to each Fund, on a pro rata basis, in which the Participant has a Subaccount under the relevant Accounts. Withdrawals made pursuant to this Article 8 shall be made as of the Valuation Date as of which the withdrawal is processed by the Trustee and a Participant’s Accounts shall be adjusted accordingly.

     8.10 Timing and Form of Payment of Withdrawals. All withdrawals pursuant to this Article 8 shall be paid in cash in a lump sum as of the Valuation Date that authorized distribution directions are received by the Trustee, provided that any applicable legal requirements have been satisfied; provided, however, that, in the case of a withdrawal made on or before December 31, 2009, a Participant may, by giving prior Notice to the Plan Administrator within such time limit as the Plan Administrator shall prescribe, elect to have that portion of his withdrawal which is charged against his Temple-Inland Stock Fund, Guaranty Stock Fund or Forester Stock Fund Subaccount paid in shares of the respective Common Stock, with the value of any fractional shares and any uninvested funds held in his Company Stock Fund Subaccount paid in cash.

     8.11 Withdrawals Only Available to Employees. A Participant may make a withdrawal pursuant to this Article 8 only if he is an employee of the Group at the time of the withdrawal.

ARTICLE 9

PAYMENT OF BENEFITS

     9.1 Distribution of Benefits Upon Occurrence of Distribution Event.

          (a) If a Distribution Event occurs with respect to a Participant, such Participant may, by prior Notice to the Plan Administrator, elect to receive a distribution of his entire vested Account

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Balance. As soon as practicable after receipt of a Participant’s distribution election Notice, the Plan Administrator shall instruct the Trustee to distribute the Participant’s Account Balance in accordance with the Participant’s election; provided, however, that all distributions shall be subject to Section 9.1(d) hereof.

          (b) As soon as practicable after the Plan Administrator receives notice of (i) the occurrence of a Distribution Event with respect to a Participant whose vested Account Balance does not exceed one thousand dollars ($1,000) (five thousand dollars ($5,000) for periods prior to March 28, 2005, excluding the Participant’s Rollover Account for periods prior to March 28, 2005), or (ii) the death of a Participant, the Plan Administrator shall instruct the Trustee to distribute the vested Account Balance of such Participant to the Participant (or in the case of a deceased Participant, the Participant’s beneficiary, as designated in accordance with Section 2.1(f) hereof), subject to complying with the requirements of Section 9.1(d) hereof. As soon as practicable after the Plan Administrator receives notice of the occurrence of a Distribution Event with respect to a Participant whose vested Account Balance exceeds one thousand dollars ($1,000), but does not exceed five thousand dollars ($5,000), the Plan Administrator shall instruct the Trustee to distribute the vested Account Balance of such Participant in a Direct Rollover to an individual retirement plan designated by the Plan Administrator if the Participant does not elect to (i) have such distribution paid directly to an Eligible Retirement Plan in accordance with Section 9.8 hereof, or (ii) receive the distribution directly.

          (c) If a Participant has no balance in his Before Tax Contributions Account and Qualified Nonelective Contributions Account, and no portion of his Employer Matching Contributions Account, Company Retirement Contributions Account and Profit Sharing Contributions Account is vested, at the time the Participant receives a distribution of his entire vested Account Balance, the Participant shall be deemed to have received a distribution of his entire nonforfeitable interest in such Accounts (which, since the Participant is not vested, is zero).

          (d) In no event shall the Plan Administrator direct the Trustee to distribute a Participant’s vested Account Balance prior to satisfying the requirements of Section 402(f) of the Code.

     9.2 Payment of Benefits by Trustee; Form of Payment. Except as provided in Section 9.3 hereof, all amounts that become distributable after a Distribution Event pursuant to Section 9.1 hereof shall be paid in the form of a lump-sum payment as soon as practicable after the Trustee receives a distribution

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instruction from the Plan Administrator and any applicable legal requirements have been satisfied. Distributions made in accordance with this Article from the Funds shall be paid in cash; provided, however, if a Participant so elects, distributions from a Participant’s Stock Fund Subaccount(s) shall be made in whole shares of the respective Common Stock with fractional shares and any uninvested funds held in the Stock Fund Subaccount(s) paid in cash. The amount distributed to a Participant or beneficiary shall be equal to the applicable Participant’s Account Balance as of the date that the Trustee processes the distribution instruction.

     9.3 Installment Option for Certain Retiring Participants. A Participant who has elected to commence installment distributions pursuant to this Section 9.3 prior to January 1, 2008, may elect, by providing Notice to the Plan Administrator, to receive a lump-sum distribution of the Participant’s remaining Account Balance, in which case no further payments shall be made with respect to the Participant pursuant to this Plan. As soon as practicable after the receipt of such an election, the Plan Administrator shall instruct the Trustee to distribute to the Participant the Participant’s remaining Account Balance. In the event of the death of such a Participant prior to the payment of all installment payments the Participant is entitled to pursuant to this Section 9.3, the Participant’s remaining Account Balance shall be distributed to the Participant’s beneficiary (as designated in accordance with Section 2.1(f) hereof) in accordance with Section 9.1(b) hereof and no further payments shall be made with respect to the Participant pursuant to this Plan.

     9.4 Required Minimum Distributions. Notwithstanding any other provision of the Plan to the contrary (other than the Minimum Distribution Appendix hereto), the vested portion of a Participant’s Account Balance shall be, or begin to be, distributed to the Participant not later than the Participant’s Required Beginning Date. If, on or before a Participant’s Required Beginning Date, the Participant does not die and does not elect to receive a distribution of his vested Account Balance in the form of a lump sum payment, (a) the Participant’s vested Account Balance shall begin to be distributed to the Participant on the Participant’s Required Beginning Date in accordance with regulations issued under Section 401(a)(9) of the Code over the life of the Participant (or over a period not extending beyond the life expectancy of the Participant), and (b) the Participant may elect, by prior Notice to the Plan Administrator, after the Participant’s Required Beginning Date to accelerate distribution of the Participant’s remaining Account

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Balance in the form of a lump sum payment described in Section 9.2 hereof. If the Participant dies prior to the distribution of his entire Account Balance, the Participant’s remaining Account Balance shall be distributed to his beneficiary as soon as administratively practicable after the date of the Participant’s death in a single lump sum payment described in Section 9.2 hereof.

     9.5 Payment to Participant’s Estate. If there is no person alive to receive and receipt for any payment due under the Plan, the Plan Administrator shall direct that such payment or payments be made to the estate of the deceased Participant or the last deceased payee, as the case may be.

     9.6 Incapacity of Payee. If any person who is entitled to receive any benefits hereunder is, in the sole and absolute judgment of the Plan Administrator, legally, physically or mentally incapable of personally receiving and receipting for any distributions, the Plan Administrator in its sole and absolute discretion may instruct the Trustee to make distribution to such other person, persons, institution or institutions as in the judgment of the Plan Administrator shall then be maintaining or have custody over such distributee. The Plan Administrator may rely upon the report of a duly licensed physician with regard to capacity or may in its sole and absolute discretion first require persons claiming benefits to obtain an appropriate court order determining such person’s capacity.

     9.7 Plan Administrator Determines Payee. Except as otherwise provided by ERISA, the determination of the Plan Administrator as to the identity of the proper payee for any payment and the amount properly payable shall be conclusive, and payment in accordance with such determination shall, to the extent thereof, constitute a complete discharge of all obligations to such payee under the Plan.

     9.8 Rollover Distributions. (a) A Participant may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Participant as a Direct Rollover. Notwithstanding the foregoing, a Participant shall not be entitled to elect a Direct Rollover of an amount that is not in excess of any minimum dollar amount that the Plan Administrator may prescribe from time to time in accordance with applicable regulations.

          (b) For purposes of this Section 9.8, an “Eligible Rollover Distribution” is any distribution of all or any portion of a Participant’s Accounts, except that an Eligible Rollover Distribution

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shall not include (i) any distribution that is one of a series of substantially equal periodic payments (paid not less frequently than annually) made for a specified period of ten years or more, (ii) any distribution to the extent that such distribution is required under Section 401(a)(9) of the Code, (iii) the portion of any distribution made prior to January, 2002 that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities), (iv) any hardship distribution (within the meaning of Section 401(k)(2)(B)(i)(IV)) that is made on or after January 1, 2000, or (v) any withdrawal of default Before Tax Contributions under Section 8.6 hereof.

          (c) For purposes of this Section 9.8, an “Eligible Retirement Plan” is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Participant’s Eligible Rollover Distribution. Effective January 1, 2002, with respect to Eligible Rollover Distributions made on or after such date, the term “Eligible Retirement Plan” shall also include an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. Notwithstanding the foregoing, with respect to the portion of an Eligible Rollover Distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation on employer securities), the term “Eligible Retirement Plan” shall only include an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or a qualified defined contribution plan under Section 401(a) or 403(a) of the Code that agrees to separately account for such amounts, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

          (d) The surviving spouse of a deceased Participant or a Participant’s spouse, former spouse, or surviving spouse who is an alternate payee under a qualified domestic relations order (within the meaning of Section 414(p) of the Code) shall be treated as a Participant for purposes of this Section 9.8; provided, however, that in the case of an Eligible Rollover Distribution made before January 1, 2002, to a

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surviving spouse, the term “Eligible Retirement Plan” shall include only an individual retirement account or individual retirement annuity.

          (e) For purposes of this Section 9.8, a “Direct Rollover” is a payment by the Plan to the Eligible Retirement Plan specified by the Participant.

          (f) Effective for distributions made after December 31, 2006, and notwithstanding Sections 9.8(a) through (d) hereof, if a non-spouse beneficiary is eligible to receive a distribution of a Participant’s Accounts, which distribution would otherwise constitute an Eligible Rollover Distribution, and the non-spouse beneficiary is a designated beneficiary (within the meaning of Treasury Regulation Section 1.401(a)(9)-4), then to the extent permitted by Section 402(c) of the Code, the non-spouse beneficiary may direct a trustee to trustee transfer of the distribution of the Participant’s Accounts to an individual retirement account described in Section 408(a) of the Code or an individual retirement annuity described in Section 408(b) of the Code (other than an endowment contract) established for the purpose of receiving the distribution on behalf of the non-spouse beneficiary, and (i) such transfer shall be treated as a Direct Rollover of an Eligible Rollover Distribution for purposes of Section 402(c) of the Code, and (ii) such individual retirement account or individual retirement annuity shall be treated as an inherited individual retirement account individual retirement annuity (within the meaning of Section 408(d)(3)(C)).

          (g) The provisions of this Section 9.8 shall be effective as of January 1, 1993, except as otherwise provided herein.

     9.9 Distributions Pursuant to Qualified Domestic Relations Orders. Notwithstanding any other provision of Article 8 or this Article 9 to the contrary, all or a portion of a Participant’s Accounts may be distributed at any time to an “alternate payee” (within the meaning of Section 414(p) of the Code) pursuant to a “qualified domestic relations order” (within the meaning of Section 414(p) of the Code) to the extent permitted by applicable regulations.

ARTICLE 10

LOANS

     10.1 Availability of Loans; Application for Loans.

          (a) Subject to the terms and conditions of this Article 10, the Plan Administrator may, in its sole discretion, direct the Trustee to loan to an Eligible Borrower as of any Valuation Date an

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amount from the Eligible Borrower’s Accounts that is not less than $1,000 and that, when added to any other Loan outstanding to the Eligible Borrower does not exceed the lesser of (i) fifty percent (50%) of the Eligible Borrower’s vested Account Balance; or (ii) $50,000 reduced by the highest outstanding balance of loans, during the twelve (12) month period immediately preceding the date the Loan is made, from the Plan and from any other tax qualified retirement plan maintained by the Group.

          (b) Loans shall be made available to Eligible Borrowers on a reasonably equivalent basis without regard to race, color, religion, sex, age or national origin and after giving consideration only to those factors which would be considered in a normal commercial setting by an entity in the business of making similar types of loans. Notwithstanding the foregoing, the Plan Administrator may impose different terms and conditions on Loans made at different times and to different Eligible Borrowers. The Plan Administrator may change the terms of any outstanding loan to the extent required by applicable law.

          (c) An application for a Loan shall be made by an Eligible Borrower by providing Notice to the Plan Administrator within such period of time prior to the date of the Loan as the Plan Administrator may prescribe.

     10.2 Terms of Loans.

          (a) Loans shall bear a reasonable rate of interest established by the Plan Administrator that will provide the Plan with a return commensurate with the interest rates charged by entities in the business of lending money for loans which would be made under similar circumstances.

          (b) Loans shall be adequately secured, but in no event shall more than fifty percent (50%) of an Eligible Borrower’s vested Account Balance under the Plan at the time of the Loan be considered as security. The adequacy of such security shall be determined by the Plan Administrator, in its sole discretion, in light of the type and amount of security which would be required in the case of an otherwise identical transaction in a normal commercial setting between unrelated parties on arm’s-length terms.

          (c) The period of repayment for each Loan shall be arrived at by mutual agreement between the Plan Administrator and an Eligible Borrower, but such period shall not in any case exceed five (5) years; provided, however, that a Residential Loan may have a term of up to twenty-five (25) years.

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          (d) An Eligible Borrower shall be permitted to have no more than one (1) outstanding Loan at any time; except in the case of an Eligible Borrower who has two (2) outstanding Loans as of December 31, 2007, such Eligible Borrower may continue to repay both Loans in accordance with their terms as of such date, but he may not obtain another Loan hereunder until such Loans are no longer outstanding.

          (e) Loan repayments by a Borrower who is an employee of the Group shall be made through regular payroll deductions made not less frequently than quarterly from amounts otherwise payable to the Eligible Borrower. Any Borrower who is not receiving any compensation from a member of the Group from which payroll deductions can be made shall be required to make required Loan repayments by money order or a certified or cashier’s check delivered to the office of the Plan Administrator on or before their respective due dates or otherwise in accordance with rules prescribed by the Plan Administrator. Cash payments (including personal checks) shall not be accepted.

          (f) A Borrower shall be permitted to prepay, without penalty, all of the outstanding balance of a Loan and accrued interest thereon at any time; provided, however, that partial prepayments shall not be permitted.

          (g) Each Loan shall be evidenced by such documentation as may be required by the Plan Administrator, including but not limited to an authorization from each Borrower who is an employee of the Group to permit its Employer to effect repayment through regular payroll deductions.

          (h) Notwithstanding any other provision of this Plan to the contrary, no distribution shall be made to any Borrower from that portion of a Borrower’s Before Tax Contributions Account that secures one or more Loans made to such Borrower unless and until all such loans have been repaid.

          (i) Each Loan shall have such additional terms and conditions as may be determined by the Plan Administrator in its sole discretion, including, but not limited to, terms and conditions relating to application and administration fees, events of default, prepayments, and required security.

          (j) A loan that was made to a Participant under the terms of a Merged Plan and that is transferred to this Plan in connection with the merger of the Merged Plan into this Plan or that was rolled over into this Plan pursuant to Section 3.7 hereof shall be treated as a Loan hereunder except that the terms

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of such a Loan shall be required to comply with the requirements of this Article 10 only to the extent determined by the Plan Administrator in its discretion.

     10.3 Events of Default.

          (a) The outstanding balance of any Loan shall, at the sole option of the Plan Administrator, immediately become due and payable without further notice or demand, upon the occurrence, with respect to a Borrower of any of the following events of default:

               (i) any payment of principal or accrued interest on a Loan remains due and unpaid for a period of ten (10) calendar days after the same becomes due and payable under the terms of the loan, provided that the Plan Administrator is authorized to allow a grace period that does not continue beyond the last day of the calendar quarter following the calendar quarter in which the required payment was not made;

               (ii) the commencement of a proceeding in bankruptcy, receivership or insolvency by or against the Borrower, but only to the extent then permitted under applicable federal law;

               (iii) the later of the termination of the employment of the Borrower with the Group for any reason or the Borrower ceasing to be an Eligible Borrower;

               (iv) the Borrower attempts to make an assignment for the benefit of creditors of that portion of his Before Tax Contributions Account securing his Loan or in any other security for his Loan;

               (v) a qualified domestic relations order (as such term is then defined in Section 414(p) of the Code) with respect to the Borrower is received by the Plan Administrator; or

               (vi) any Loan proceeds are used, directly or indirectly, by the Borrower to purchase or carry securities (as such term is then defined for purposes of Regulation G of the Federal Reserve Board as promulgated pursuant to Section 7 of the Securities and Exchange Act of 1934).

          (b) Any payments of principal or interest on a Loan not paid when due shall bear such interest thereafter as may be specified by the terms of the loan. The payment and acceptance of any sum or sums at any time on account of a Loan after the occurrence of an event of default, or any failure to

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act to enforce the rights granted hereunder upon the occurrence of an event of default, shall not be a waiver of the right of acceleration set forth in Section 10.3(a) hereof.

          (c) If an event of default and the acceleration of the outstanding balance of any Loan shall occur as described in Section 10.3(a), the Plan Administrator shall have the right to direct the Trustee to pursue any remedies available to a creditor at law or under the terms of the Loan, including the right to execute on the security for the Loan in satisfaction of the outstanding balance of the Loan; provided, however, that the Plan Administrator shall not have the right to direct the Trustee to execute on any amounts credited to a Borrower’s Before Tax Contributions Account before the date on which such amounts may be distributed without adversely affecting the tax-qualified status of the Plan.

     10.4 Accounting for Loans. A Participant Loan Subaccount shall be established as of the date a Loan is made to an Eligible Borrower and an amount equal to the principal amount of the Loan shall be transferred from the Eligible Borrower’s Accounts to his Participant Loan Subaccount, with the amount transferred coming (a) first from earnings allocated to the Eligible Borrower’s Before Tax Contributions Account, until exhausted, (b) second, from Before Tax Contributions, and (c) third, pro rata from the Participant’s other Accounts based on the vested balance of such Accounts. The Loan shall be treated as an investment of the funds credited to the Eligible Borrower’s affected Accounts. Cash equal to the amount of the Loan shall be obtained by liquidating, on a pro rata basis, the investments allocated to the Subaccounts under the affected Accounts. Payments of principal and interest on a Loan shall be credited to the Borrower’s Accounts that have a Loan Subaccount in proportion to the balances in such Subaccounts and invested in the various Funds in the same proportion as the Eligible Borrower’s current contributions are invested; provided, however, if the Borrower is not making any current Before Tax Contributions to the Plan, the payments shall be invested in the Target Retirement Fund appropriate for the Borrower’s age.

ARTICLE 11

ADMINISTRATION OF THE PLAN

     11.1 Authority of Plan Administrator.

          (a) The Plan shall be administered on behalf of the participating Employers by an administrator (the “Plan Administrator”) appointed by the Board of Directors or Chief Executive Officer of the Company.

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          (b) Except as otherwise provided herein, the Plan Administrator shall be solely responsible for the administration, operation and interpretation of the Plan. The Plan Administrator shall establish rules and regulations appropriate for the administration of the Plan. It shall have the exclusive right and discretion to interpret the Plan and to decide any and all matters arising thereunder or in connection with the administration of the Plan in its sole discretion, and it shall endeavor to act, whether by general rules or by particular decisions, so as not to discriminate in favor of any person or class of persons. Except as otherwise provided by ERISA, such decisions, actions and records of the Plan Administrator shall be conclusive and binding upon the Company, the Employers and all persons having or claiming to have any right or interest in or under the Plan.

          (c) The Plan Administrator may delegate to (i) any agent or agents of the Group, or (ii) any employee or employees of the Group, severally or jointly, the authority to perform any act or function in connection with the administration of the Plan. The Plan Administrator may also, in its discretion, contract with one or more third parties to perform any act or function in connection with the administration of the Plan and with respect to such acts or functions, references herein to the Plan Administrator shall be deemed to be references to such third party.

          (d) The Plan Administrator shall maintain such records as are required under ERISA or under the Code and such additional records as it deems necessary or appropriate showing the fiscal transactions of the Plan.

     11.2 Claims Procedure.

          (a) If any Participant, beneficiary or other payee (a “claimant”) claims to be entitled to a benefit under the Plan and the Plan Administrator determines that such claim should be denied in whole or in part, the Plan Administrator shall notify such claimant of its decision in writing (which may be provided electronically). Such notification will be written in a manner calculated to be understood by the claimant and will contain (i) specific reasons for the denial, (ii) specific reference to pertinent Plan provisions, (iii) a description of any additional material or information necessary for the claimant to perfect such claim and an explanation of why such material or information is necessary, and (iv) a description of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following the rendering of an

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adverse decision on review. Such notification will be given within a reasonable period of time, but not later than ninety (90) days after the claim is received by the Plan Administrator, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. If the Plan Administrator determines that such an extension of time is required, written notice of the extension shall be provided to the claimant prior to the end of the initial ninety (90) day period. The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Plan Administrator expects to render its decision. In no event shall the extension exceed an additional ninety (90) days from the end of the initial ninety (90) day period. Any electronic notification provided by the Plan Administrator under this Section 11.2 shall comply with the standards imposed by 29 C.F.R. 2520.104b-1(c)(1)(i)-(iv).

               (i) Within sixty (60) days after the date on which a claimant receives a written notice of a denied claim, the claimant may file a written request with the Plan Administrator for a review of the denied claim. If the claimant requests a review of the denied claim, the claimant shall be entitled to submit to the Plan Administrator written comments, documents, records and other information relating to the claim for benefits and to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits. The Plan Administrator shall perform its review taking into account all comments, documents, records and other information submitted by the claimant relating to the claim without regard to whether such information was submitted or considered in the initial benefit determination. The Plan Administrator will notify the claimant of its decision in writing (which may be provided electronically). If the claim is denied, the notification will be written in a manner calculated to be understood by the claimant and will contain (A) the specific reasons for the denial, (B) references to pertinent provisions of the Plan, (C) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits, and (D) a statement of the claimant’s right to bring an action under Section 502(a) of ERISA.

               (ii) The review provided for by Section 11.2(b)(i) will be made within a reasonable period of time, but not later than sixty (60) days after the Plan Administrator receives the request for review, unless the Plan Administrator determines that special circumstances require an

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extension of time for processing the claim. If the Plan Administrator determines that an extension of time is required, written notice of the extension shall be furnished to the claimant prior to the end of the initial sixty (60) day period. The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Plan Administrator expects to render its decision. In no event shall the extension exceed an additional sixty (60) days from the end of the initial sixty (60) day period. If the extension of time is needed due to the claimant’s failure to submit information necessary to make a decision, the period during which the Plan Administrator must make a decision shall be tolled from the date the extension notice is sent to the claimant until the date the claimant responds to the request for additional information.

     11.3 Financial Statements. The Plan Administrator shall engage a “qualified public accountant” (as defined in Section 103(a)(3)(D) of ERISA) to prepare such audited financial statements of the operation of the Plan as shall be required by ERISA or by the Code.

     11.4 Liability of Plan Administrator. The Plan Administrator (and each member of any committee that serves as the Plan Administrator) shall not be liable for any act or omission on its own part, excepting only its own willful misconduct or gross negligence except as is otherwise expressly provided by ERISA. To the fullest extent permitted by applicable laws and to the extent not insured against by any insurance company pursuant to the provisions of any applicable insurance policy, the Company shall indemnify and save harmless the Plan Administrator (and each member of any committee that serves as the Plan Administrator) against any and all claims, demands, suits or proceedings in connection with the Plan and Trust Fund that may be brought by Participants or their spouses or other designated beneficiaries (or estates), Employees of participating Employers or by any other person, corporation, entity, government or agency thereof; provided, however, that such indemnification shall not apply with respect to acts or omissions of willful misconduct or gross negligence. The Company may, at the Company’s expense, settle any such claim or demand asserted or suit or proceeding brought against the Plan Administrator (or any member of any committee that serves as the Plan Administrator) when such settlement appears to be in the best interests of the Company.

     11.5 Standard of Judicial Review of Plan Administrator Action. The Plan Administrator has full and absolute discretion in the exercise of each and every aspect of the rights, power, authority and

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duties retained or granted it under the Plan, including without limitation, the authority to determine all facts, to interpret this Plan, to apply the terms of this Plan to the facts determined, to make decisions based upon those facts and to make any and all other decisions required of it by this Plan, such as the right to benefits, the correct amount and form of benefits, the determination of any appeal, the review and correction of the actions of any prior administrative committee, and the other rights, powers, authority and duties specified in this Article and elsewhere in this Plan. Notwithstanding any provisions of law, or any explicit or implicit provision of this document, any action taken, or finding, interpretation, ruling or decision made by the Plan Administrator in the exercise of any of its rights, powers, authority or duties under this Plan shall be final and conclusive as to all parties, including, without limitation, all Participants, former Participants and beneficiaries, regardless of whether the Plan Administrator or one or more of its members may have an actual or potential conflict of interest with respect to the subject matter of the action, finding, interpretation, ruling or decision. No final action, finding, interpretation, ruling or decision of the Plan Administrator shall be subject to de novo review in any judicial proceeding. No final action, finding, interpretation, ruling or decision of the Plan Administrator may be set aside unless it is held to have been arbitrary and capricious by a final judgment of a court having jurisdiction with respect to the issue.

ARTICLE 12

MANAGEMENT OF THE TRUST FUND

     12.1 Designation of Trustee. All contributions shall be made to, and held in trust by, the Trustee of the Plan, who shall be appointed by the Plan Administrator, with such powers in the Trustee as to investment, reinvestment, control and disbursement of the Trust Fund as may be provided in the Trust Agreement and shall be in accordance with the Plan and permitted under ERISA and under the Code. The Plan Administrator may remove any Trustee at any time, with or without cause, upon reasonable notice, and upon such removal or upon the resignation of any Trustee, the Plan Administrator shall promptly designate a successor Trustee.

     12.2 Plan Assets Held in Trust.

          (a) All assets held by the Trustee under the Trust Fund shall be held in trust for the exclusive benefit of Participants or, if deceased, their spouses or other designated beneficiaries (or estates),

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and no part of the corpus or income of the Trust Fund shall be used for, or diverted to, purposes other than for the exclusive benefit of such persons under the Plan or for the payment of reasonable expenses of administering the Plan; provided, however, that if any contribution is made by an Employer as the result of a mistake of fact made in good faith or is conditioned on the deductibility of such contribution under Section 404(a) of the Code, that Employer may direct the Trustee to return within one (1) year after the date of the payment or after the date the deduction is denied, whichever is applicable, the amount contributed by mistake of fact or the amount that is not deductible, whichever is applicable. Earnings attributable to any excess Employer contributions shall not be returned to that Employer, but losses shall reduce the amount to be returned. All contributions to the Plan are conditioned on their deductibility under Section 404 of the Code.

          (b) No person shall have any interest in or right to any part of the earnings of the Trust Fund, or any rights in, to or under the Trust Fund or any part of its assets except to the extent expressly provided in the Plan. Notwithstanding anything herein to the contrary, the spouse, former spouses, beneficiary or any other person claiming benefits on behalf of any Participant shall have absolutely no rights whatsoever under the Plan prior to the death of that Participant except as may otherwise be expressly provided under ERISA (e.g., spousal consent rights and qualified domestic relations orders).

     12.3 Appointment of Investment Manager.

          (a) The Investment Committee may appoint one or more investment managers to manage any assets of the Plan. As used herein, the term “investment manager” shall mean any person or entity who: (a) has power to manage, acquire or dispose of any assets of the Plan; (b) is (i) registered as an investment advisor under the Investment Advisors Act of 1940, (ii) a bank, as defined in that Act, or (iii) an insurance company qualified, under the laws of more than one state, to perform services described in (a) above; and (c) has acknowledged in a writing delivered to the Investment Committee and the Trustee that it is a fiduciary with respect to the Plan.

          (b) If the Investment Committee determines that there is a potential for a conflict of interest (or the appearance of a conflict of interest) relating to the operation and administration of the Plan with respect to the investment of the Plan’s assets in any of the Stock Funds and/or the provisions of

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Sections 7.7 through 7.9 hereof, the Investment Committee, may, in its discretion, appoint one or more independent fiduciaries and/or investment managers (each, an “Independent Fiduciary”) to undertake all or a portion of the following duties and responsibilities:

               (i) serve as Plan fiduciary with sole responsibility for ensuring compliance with ERISA with respect to participant communications and disclosures relating to the applicable Stock Fund, including disclosures and communications relating to proxy voting; and

               (ii) serve as Plan fiduciary and investment manager for the applicable Stock Fund and the investment of Plan assets in such Fund, with sole responsibility for ensuring compliance with ERISA with respect to Plan investments in the applicable Stock Fund and the applicable Common Stock (including with respect to tender offers) and the voting of proxies for the applicable Common Stock, taking into account the terms of the Plan (including the Plan’s provisions relating to the maintenance of the applicable Stock Fund and participant direction of investments and the voting of proxies).

               (iii) serve as Plan fiduciary with sole responsibility for ensuring compliance with confidentiality requirements under Section 7.9 hereof and the regulations under Section 404(c) of ERISA.

          (c) Each of the Investment Committee and any Independent Fiduciary shall be a “named fiduciary” for purposes of Section 402(a)(2) of ERISA.

ARTICLE 13

AMENDMENT OF THE PLAN

     13.1 Amendment. The Plan may be wholly or partially amended or otherwise modified at any time by the Board of Directors or Chief Executive Officer of the Company, or by the Plan Administrator with respect to Appendices I and II hereto. The Plan Administrator has the authority to amend or otherwise modify the Plan in all other respects, except for Plan amendments that would materially alter the cost of providing benefits under the Plan; provided, however, that:

          (a) except as otherwise provided herein and permitted under the Code and under ERISA, no amendment or modification shall be made at any time prior to the satisfaction of all liabilities under the Plan with respect to Participants or, if deceased, their spouses or other designated beneficiaries

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(or estates) and with respect to the expenses of the Plan which would permit any part of the corpus or income of the Trust Fund to be used for, or diverted to, purposes other than for the exclusive benefit of such persons under the Plan and for the payment of the expenses of the Plan;

          (b) no amendment or modification shall have any retroactive effect so as to deprive any person of any benefits already accrued, except that any amendment may be made retroactive which is necessary to bring the Plan into conformity with governmental regulations in order to retain the qualification of the Plan and Trust Fund under Sections 401(a), 401(k) and 501(a) of the Code or to meet the requirements of ERISA and other applicable laws;

          (c) no amendment or modification shall be made which substantially increases the duties or liabilities of the Trustee, the Plan Administrator, the Investment Committee or any Employer without the prior written consent of the party so affected; and

          (d) no amendment shall be made which changes the vesting requirements in Article 6 hereof or in Section 16.4 hereof, if applicable, unless each Participant whose Period of Service was at least three (3) years as of the effective date of such amendment is permitted to elect to remain under the pre-amendment vesting requirements with respect to all of his Plan benefits accrued both before and after the effective date of such amendment.

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ARTICLE 14

DISCONTINUANCE OF THE PLAN

     14.1 Right To Terminate Plan. The Plan may be terminated, in whole or in part, at any time by the Board of Directors or Chief Executive Officer of the Company, but only upon condition that such action is taken as shall render it impossible for any part of the corpus or income of the Trust Fund to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or, if deceased, their spouses or other designated beneficiaries (or estates) under the Plan and for the payment of reasonable costs of administering the Plan, except as otherwise provided herein and permitted under ERISA and/or under the Code. In the event of any termination of the Plan, in whole or in part, or the complete discontinuance of contributions hereunder, the Employer Matching Contributions Account, Company Retirement Contributions Account and any Profit Sharing Contributions Account of each Participant affected by the partial or complete termination shall become fully vested and nonforfeitable.

     14.2 Valuation of Trust Fund upon Termination. If the Plan is terminated, in whole or in part, pursuant to Section 14.1, and the Board of Directors or Chief Executive Officer of the Company determines that the Trust Fund shall be terminated, the Trust Fund shall be revalued as of such date, and the current value of all Accounts shall be distributed in accordance with Article 9.

     14.3 Continuation of Trust. If the Plan is terminated, in whole or in part, pursuant to Section 14.1, but the Board of Directors or Chief Executive Officer of the Company determines that the Trust Fund shall be continued pursuant to its terms and the provisions of this Section, no further contributions shall be made by either the Participants or by the Employers, but the Trust Fund shall be administered as though the Plan were otherwise in full force and effect. If the Trust Fund is subsequently terminated, the provisions of Section 14.2 shall then apply.

     14.4 Plan Mergers and Transfers of Assets and Liabilities.

          (a) No merger or consolidation with, or transfer of assets or liabilities to, any other pension or retirement plan shall be made unless the benefits each Participant in the Plan would receive if the other plan were terminated immediately after such merger, consolidation or transfer of assets and liabilities would be at least as great as the benefits he would have received had the Plan been terminated immediately before such merger, consolidation or transfer.

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          (b) The Plan Administrator, in its sole discretion, may at any time (i) transfer to an Affiliate Plan assets and liabilities relating to Participants who are covered by such Affiliate Plan and (ii) accept the transfer of assets and liabilities to this Plan from an Affiliate Plan with respect to Participants who have account balances under such Affiliate Plan. In the discretion of the Plan Administrator, and in accordance with rules prescribed by the Plan Administrator, assets may be transferred between this Plan and an Affiliate Plan either in cash or in-kind.

          (c) All transfers of account balances between this Plan and an Affiliate Plan and any merger of a Merged Plan into this Plan shall comply with Sections 411(a)(10) of the Code (relating to changes in vesting schedules) and 411(d)(6) of the Code (relating to reductions of accrued benefits and elimination of optional forms of benefit). To the extent that an Affiliate Plan or a Merged Plan provides an optional form of benefit with respect to all or a portion of an amount transferred to this Plan that is not otherwise available under this Plan, such optional form of benefit shall nonetheless be provided under this Plan with respect to such applicable portion of the transferred amount under the same terms and conditions as such optional form of benefit was provided under the transferee Affiliate Plan or Merged Plan as of the date of transfer, subject to such terms and conditions as the Plan Administrator may impose that are consistent with the requirements of Section 411(d)(6) of the Code. The Plan Administrator may establish such accounts and subaccounts as it deems necessary or appropriate to account for amounts transferred to the Plan pursuant to this Section 14.4(c). If the assets of any Merged Plan that are transferred to this Plan in connection with a Plan Merger include one or more loan notes evidencing one or more loans made to a participant in a Merged Plan, such loans shall be administered in accordance with their respective terms except to the extent determined otherwise by the Plan Administrator.

          (d) Notwithstanding the provisions of Section 14.4(c) hereof, the merger of a Merged Plan into this Plan or the transfer of account balances from a Merged Plan to this Plan shall, as of the applicable Merger Date, constitute an amendment that (i) except as otherwise provided, is adopted and effective as of the applicable Merger Date and (ii) causes all optional forms of benefit made available under this Plan pursuant to Section 14.4(c) hereof that would not otherwise be available hereunder (each, a “Protected Benefit”) to cease to be available hereunder to a Participant to the maximum extent permitted under Treasury Regulation Section 1.411(d)-4, provided that (A) the amendment shall not apply with

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respect to any distribution to a Participant with an annuity starting date that is earlier than the date on which such amendment is effective with respect to such Participant and (B) no Protected Benefit shall cease to be available hereunder to a Participant unless the Participant is entitled to elect to receive that portion of the Participant’s Account Balance that could otherwise be paid in the form of the Protected Benefit in the form of a single-sum distribution form that is otherwise identical (within the meaning of Treasury Regulation Section 1.411(d)-4) to the Protected Benefit.

          (e) The amendments made to the Appendices of this Plan by the December 1, 2001 amendment and restatement of this Plan shall not apply with respect to any distribution to a Participant that occurs earlier than the earlier of (i) the 90th day after the date that the Participant has been furnished with a summary that reflects the amendments and that satisfies 29 C.F.R. 2520.104b-3, or (ii) January 1, 2003.

          14.5 Certain Spin-Offs and Mergers. Effective as of 11:59 P.M. December 31, 2004 the Walter Mortenson Profit Sharing Plan was merged with and into the Plan, with this Plan being the surviving plan.

ARTICLE 15

STATEMENT OF INTENT

     15.1 Qualification. The Plan and the related Trust Agreement are intended and designed to qualify under Sections 401(a), 401(k), and 501(a) of the Code and the Plan is hereby designated a profit sharing plan for purposes of Sections 401(a), 401(k), 402, 412 and 417 of the Code. Anything contained in the Plan to the contrary notwithstanding, if the Internal Revenue Service determines that the Plan and the related Trust Agreement do not meet the requirements of Sections 401(a), 401(k) and 501(a) of the Code, then the Plan Administrator shall be entitled to make such modifications, alterations and amendments of the Plan and the related Trust Agreement as are necessary to retain a favorable determination and such modifications, alterations and amendments may be effective retroactively to the extent required to retain a favorable determination. The Plan Administrator and/or the Company may, in their discretion, take any and all such actions as they deemed necessary or appropriate with respect to the administration and operation of the plan, including taking any corrective action authorized under the Internal Revenue Service Employee Plans Compliance Resolution Program (or any successor or similar program), for purposes of

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maintaining the Plan’s and Trust’s compliance with the requirements of Sections 401(a), 401(k) and 501(a) of the Code.

     15.2 Section 404(c) of ERISA. This Plan is designed to satisfy the requirements of Section 404(c) (including 404(c)(5)) of ERISA and the regulations thereunder.

     15.3 Responsibility of Named Fiduciaries. It is declared to be the express purpose and intention of the Plan that each “named fiduciary” as such term is defined in Section 402(a)(2) of ERISA shall have individual responsibility for the prudent execution of the specific functions and duties assigned to him, and none of such responsibilities or any other responsibility shall be shared by two (2) or more of such named fiduciaries unless such sharing shall be provided by a specific provision of the Plan or of the Trust Agreement. Whenever one (1) named fiduciary is required by the Plan or by the Trust Agreement to follow the directions of another named fiduciary, the two (2) named fiduciaries shall not be deemed to have assigned a shared responsibility, but the responsibility of the named fiduciary giving the directions shall be deemed his sole responsibility, and the responsibility of the named fiduciary receiving those directions shall be to follow them insofar as such instructions are on their face proper under applicable law and not prohibited under Section 4975(c) of the Code or under Section 406 of ERISA.

     15.4 Legal Rights and Liabilities. It is further declared to be the express purpose and intention of the Plan that, except as otherwise provided by ERISA, no liability whatsoever shall attach to or be incurred by the shareholders, employees or directors of the Company or of any Employer or of any representatives appointed hereunder by the Board of Directors or Chief Executive Officer of the Company under or by reason of any of the terms and conditions of the Plan. Neither the establishment and maintenance of the Plan nor any provision or amendment thereof nor any act or omission under or resulting from the operation of the Plan shall be construed:

          (a) as conferring upon any Employee, Participant, spouse, beneficiary or any other person, firm, corporation or association, any legal or equitable right or claim against the Plan Administrator, the Company, any Employer, the Trustee, or any shareholder, officer, employee or director of any Employer, except to the extent that such right or claim shall be specifically and expressly provided in the Plan or provided by law. Any and all such rights and claims, whether arising by common law or in equity or created by statute, are hereby expressly waived and released to the fullest extent permitted by law

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by every Employee on behalf of himself, his spouse or other beneficiary and any and all other persons who might claim through him as a condition of and as a part of the consideration for the contributions made by the Employers under the Plan and for the receipt of benefits hereunder;

          (b) as an agreement, consideration or inducement of employment or as affecting in any manner the rights or obligations of the Employers or of any Employee to continue or to terminate the employment relationship at any time; or

          (c) as creating any responsibility or liability of the Plan Administrator, the Employers or the Trustee for the validity or effect of the Plan or of any investment at any time included in the Trust Fund.

ARTICLE 16

TOP-HEAVY RULES

     16.1 Applicability of Rules. The rules set forth in this Article 16 shall be applicable with respect to any Plan Year in which the Plan is determined to be a Top-Heavy Plan. The provisions of this Article 16 shall be applied only to the extent necessary to comply with Section 416 of the Code and in a manner consistent with all requirements imposed under Section 416 of the Code.

     16.2 Determination of Top-Heavy Status. The Plan shall be considered a Top-Heavy Plan with respect to any Plan Year if as of the last calendar day of the immediately preceding Plan Year (the “determination date”):

          (a) The present value of the Accrued Benefits of key employees (as such term is defined below) exceeds sixty percent (60%) of the present value of the Accrued Benefits of all Participants and former Participants other than former key employees (as such term is defined below); provided, however, that the Accrued Benefits of any Participant who has not performed any services for the Group as an employee during a five (5) year period ending on the determination date (as such term is defined above) shall be disregarded; or

          (b) the Plan is part of a required aggregation group (as such term is defined below) and the required aggregation group is top-heavy; provided, however, that the Plan shall not be considered a Top-Heavy Plan with respect to any Plan Year in which the Plan is part of a required or permissive aggregation group (as such terms are defined below) which is not top-heavy. For purposes of this Article

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16, the term “key employee” shall have the meaning prescribed in Section 416(i) of the Code and the regulations thereunder.

          (c) For purposes of this Article 16, the term “required aggregation group” shall include:

               (i) all qualified retirement plans maintained by the Group in which a key employee (as such term is defined above) is a participant, and

               (ii) any other qualified retirement plans maintained by the Group which enable any qualified retirement plan described in the preceding clause (i) above to meet the requirements of Section 401(a)(4) or of Section 410 of the Code.

          (d) For purposes of this Article 16, the term “permissive aggregation group” shall include all qualified retirement plans that are part of a required aggregation group (as such term is defined above) and any other qualified retirement plans maintained by the Group if such group will continue to meet the requirements of Sections 401(a)(4) and 410 of the Code.

          (e) Solely for the purpose of determining if the Plan, or any other plan included in a required aggregation group of which the Plan is a part, is top-heavy (within the meaning of Section 416(g) of the Code), the Accrued Benefits of an Employee other than a key employee shall be determined under:

               (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Group, or

               (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rule of Section 411(b)(1)(C) of the Code.

     16.3 Determination of Accrued Benefits. For purposes of this Article 16, Accrued Benefits with respect to any Plan Year shall be determined as of the determination date (as such term is defined in Section 16.2) for that Plan Year based on Account balances as of the most recent Valuation Date within a consecutive twelve (12) month period ending on such determination date; provided, however, that such Account balances shall be adjusted to the extent required by Section 416 of the Code to increase such Account balances by the amount of any Employer or Participant contributions and of any rollovers or plan-to-plan transfers (other than rollovers or plan-to-plan transfers which are initiated by a Participant from any

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qualified retirement plan maintained by an unrelated employer after December 31, 1983) made and allocated after the Valuation Date but on or before such determination date and by any distributions made to Participants prior to the Valuation Date during any of the five (5) consecutive Years immediately preceding the Plan Year for which the determination as to whether the Plan is a Top-Heavy Plan is being made (including distributions from a terminated plan which, if not terminated, would have been part of a required aggregation group (as such term is defined in Section 16.2)) and to reduce such Account balances by any rollovers or plan-to-plan transfers made to the Plan on or before the Valuation Date which are initiated by a Participant from any qualified retirement plan maintained by an unrelated employer.

     16.4 Vesting for Top-Heavy Years. Notwithstanding the provisions of Article 6, with respect to any Plan Year in which the Plan is determined to be a Top-Heavy Plan, a Participant’s Accrued Benefit which is derived from Employer Retirement or Matching contributions shall vest in accordance with the following vesting schedule unless such Participant’s vested benefit percentage, as determined under Article 6, is greater:

Period of Service	Vested Percentage of Employer Account Shall Be
Less than three (3) years	zero percent (0%)
Three (3) years or more	one hundred percent (100%)

provided, however, that if the Plan becomes a Top-Heavy Plan and subsequently ceases to be such, the vesting schedule shown above shall continue to apply but only with respect to those Participants whose Period of Service is equal to or greater than three (3) years as of the last calendar day of the final Top-Heavy Year.

     16.5 Contributions for Top-Heavy Years. With respect to any Plan Year in which the Plan is a Top-Heavy Plan, the minimum amount of Employer contributions to be allocated to the Accounts of any Employee who is eligible to be a Participant (including forfeitures constructively allocated to that Participant’s Accounts and any employer contributions and forfeitures allocated to that Participant under any other qualified defined contribution plans maintained by the Group but, effective on and after

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January 1, 1989, excluding any employee elective contributions) who had not separated from service with the Group as of the last calendar day of that Plan Year, regardless of the number of Hours of Service completed by that Participant during that Plan Year, or whether the Employee declines to make mandatory contributions (if the Plan otherwise requires same) and who is not a key employee (as such term is defined in Section 16.2) for that Plan Year, shall not be less than three percent (3%) of that Participant’s Section 415 Compensation in that Plan Year; provided, however, that the percentage of Section 415 Compensation allocated to the Employer Matching Contributions Account, Company Retirement Contributions Account, and Qualified Nonelective Contributions Account of any Participant who is not a key employee (as such term is defined in Section 16.2) under this Article with respect to that Plan Year shall not exceed the highest percentage of Section 415 Compensation allocated to the Employer Matching Contributions Account, Company Retirement Contributions Account, and Qualified Nonelective Contributions Account of any Participant who is a key employee in that Plan Year. Notwithstanding the foregoing, in the event that an Employee who is otherwise entitled to a minimum benefit equal to three percent (3%) of his Section 415 Compensation pursuant to this Section is a participant in a defined benefit plan that is a part of this Plan’s required or permissive aggregation group, such Employee shall only be entitled to a combined benefit (determined in accordance with the requirements of Treasury Regulation § 1.416-1, Q&A M-12) under the plans equal to the minimum benefit required under the defined benefit plan pursuant to Section 416 of the Code.

     16.6 Certain Changes Effective January 1, 2002.

          (a) This Section 16.7 shall apply for purposes of determining whether the plan is a top-heavy plan under Section 416(g) of the Code for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years. This Section modifies the foregoing provisions of this Article 16.

          (b) The term “key employee” means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual Section 415 Compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a five-percent owner of the employer, or a one-percent owner of the employer having annual Section 415 Compensation of more

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than $150,000. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

          (c) This Section 16.7(c) shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date.

               (i) The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the one-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting “five-year period” for “one-year period.”

               (ii) The accrued benefits and accounts of any individual who has not performed services for the employer during the one-year period ending on the determination date shall not be taken into account.

          (d) Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code.

          (e) Notwithstanding the foregoing, in the event that an employee who is otherwise entitled to a minimum benefit equal to three percent (3%) of his Section 415 Compensation pursuant to this Section is a participant in a defined benefit plan that is a part of this Plan’s required or permissive aggregation group, such employee shall only be entitled to a combined benefit (determined in accordance

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with the requirements of Treasury Regulation § 1.416-1, Q&A M-12) under the plans equal to the minimum benefit required under the defined benefit plan pursuant to Section 416 of the Code.

ARTICLE 17

GENERAL PROVISIONS

     17.1 Nonalienation of Benefits.

          (a) To the fullest extent permitted by law, no benefits under the Plan shall be subject in any manner, voluntarily or involuntarily, to anticipation, alienation, sale, transfer, assignment, pledge, garnishment, encumbrance or charge, and any action by way of anticipation, alienation, selling, transferring, assigning, pledging, garnishing, encumbering or charging the same shall be void and of no effect, and no such benefits shall be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits. The preceding sentence shall also apply to the creation, assignment or recognition of a right to any benefit payable with respect to any Participant or to any beneficiary under the Plan pursuant to a domestic relations order, unless such order is determined to be a qualified domestic relations order as defined in Section 414(p) of the Code. The Plan Administrator shall establish such procedures for evaluating and determining the status of any domestic relations order and shall give due notice to any affected parties (Participants and alternate payees) as required by law.

          (b) Subject to any applicable provision of law to the contrary, if any Participant or any beneficiary under the Plan shall become bankrupt or attempt to anticipate, alienate, sell, transfer, assign, pledge, garnish, encumber or charge any benefits, then such benefits shall, in the sole discretion of the Plan Administrator, cease and terminate. In that event, the Plan Administrator shall hold or apply the benefits or any part thereof to or for such Participant or beneficiary, his spouse or children or other dependents, or any of them, in such manner and in such proportions as the Plan Administrator shall, in its sole discretion, determine. This Section shall not be construed in such a manner as to permit the Plan Administrator to make any assignment or otherwise to alienate any benefits in contravention of requirements under the Code or under ERISA.

     17.2 No Right to Continued Employment. The establishment of the Plan shall not be construed as conferring any rights upon any person for a continuation of employment, nor shall it be

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construed as limiting in any way the right of an Employer to discharge any person or to treat him without regard to the effect which such treatment might have upon him as a Participant under the Plan.

     17.3 Rules of Construction.

          (a) The masculine pronoun wherever used shall include the feminine pronoun and the singular shall include the plural unless the context clearly indicates the distinction.

          (b) The headings of Articles and Sections herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Plan.

          (c) Amendments made to this Plan from time to time, including amendments made pursuant to amendments and restatements of this Plan, shall be effective and apply as of such dates, and shall apply with respect to such Employees, Participants, and their beneficiaries, as shall be specified in such amendments at the time of adoption, and the Plan shall be construed and applied accordingly.

     17.4 Appendices. Appendices to this Plan shall constitute a part of this Plan and, to the extent provided therein, may establish special rules that apply to specified groups of Employees or Participants in lieu of Plan terms that would otherwise apply.

ARTICLE 18

LAPSED BENEFITS

     18.1 Notification to Participants and Beneficiaries.

          (a) If the Trustee mails by registered or certified mail, return receipt requested, to a Participant or beneficiary entitled to a distribution hereunder at his last known address, a notification that he is so entitled and said notification is returned as being undeliverable because the addressee cannot be located at said address, then the Plan shall continue to maintain the Participant’s Accounts which are invested in the various funds.

          (b) If, by the last day of the Plan Year coinciding with or immediately following the fifth (5th) anniversary of the date as of which such person first could not be located, said person has not informed the Trustee of his whereabouts, his entire interest in this Plan shall become a forfeiture and shall be used to reduce any subsequent contributions required by his Employer as provided in Section 6.4 hereof

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for the Plan Year in which it occurs. Thereafter such person shall have no further right or interest therein except as provided in Section 18.2.

     18.2 Reinstatement of Lapsed Benefits.

          (a) If a Participant or beneficiary prior to the Plan Year in which the Plan and Trust terminate, duly claims and proves entitlement to a benefit which otherwise lapsed pursuant to Section 18.1, such benefits as shall then be due, unadjusted for Trust Fund earnings and/or losses subsequent to the date of forfeiture, shall be paid by the Plan as soon as is administratively feasible.

          (b) The reinstatement of lapsed benefits shall first be derived from forfeitures which otherwise are allocable in the Plan Year of the reinstatement to be made pursuant to this Section 18.2 and if such forfeitures are not sufficient, such reinstatement to the extent necessary shall then next be made from Employer contributions.

     IN WITNESS WHEREOF, TIN Inc. has caused this amended and restated Guaranty Financial Group Inc. Savings and Retirement Plan to be executed as of this ___day of December, 2007.

TIN INC.
By:
	Name:
	Title:

ATTEST:

Name:

Title:

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APPENDIX I

List of Participating Employers

Guaranty Bank
Guaranty Insurance Services, Inc.
Guaranty Residential Lending, Inc.
Guaranty Group Inc.
Guaranty Business Credit Corporation
American Finance Group, Inc., d/b/a Guaranty Capital Corporation

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APPENDIX II

Special Rules Applicable to
Certain Employees

     (a) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Retirement Contributions Account of an Employee whose employment was terminated by the Group on or about March 16, 2000 in connection with the sale by Guaranty Bank of certain assets to Auto One, a lending unit of CalFed Bank of San Francisco, shall be fully vested and nonfortfeitable as of the date of the Employee’s termination of employment by the Group.

     (b) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of an Employee whose employment by the Group terminated upon, or in connection with, the sale by Guaranty Bank of its Childress, Texas and Paris, Texas branches to Liberty National Bank, shall be fully vested and nonforfeitable as of the date of the Employee’s termination of employment by the Group.

     (c) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of a Participant who (i) was a participant in the Old Kent Thrift Plan as of August 18, 2001; (ii) had attained at least age 55 as of September 15, 2001; and (iii) became an Employee in connection with Guaranty Residential Lending, Inc.’s purchase of the assets of Old Kent Mortgage Company from Fifth Third Bancorp of Cincinnati, Ohio, shall be fully vested and nonforfeitable.

     (d) Notwithstanding the provisions of Section 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of a Participant whose employment by the Group is designated as being terminated as the result of Project TIP shall be fully vested and nonfortfeitable.

     (e) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of a Participant whose employment by the Group is terminated in connection with the sale of Atlanta Banking Center shall be fully vested and nonfortfeitable.

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     (f) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Retirement Contributions Account of an Employee whose employment by the Group is designated as being terminated as the result of the repositioning of the mortgage origination activities conducted by Guaranty Residential Lending Inc. as announced by the Company on August 4, 2004, shall be fully vested and nonforfeitable as of the date of the Employee’s termination of employment by the Group.

     (g) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of a Participant whose employment by the Group is designated as being terminated as the result of the repositioning of Guaranty Lending Bank’s mortgage origination activities, as announced on November 29, 2005, shall be fully vested and nonforfeitable.

     (h) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of a Participant whose employment by the Group is designated as being terminated in connection with the sale of certain assets of Guaranty Business Credit Corporation to Marquette Business Credit, Inc., as announced to employees on July 5, 2006, shall be fully vested and nonforfeitable.

     (i) Notwithstanding the provisions of Sections 6.2 and 6.3 of the Plan, the Employer Matching Contributions Account and Company Retirement Contributions Account of a Participant whose employment by the Group is designated as being terminated in connection with the Transformation Plan announced by the Company in a press release, dated February 26, 2007, shall be fully vested and nonforfeitable.

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KNUTSON MORTGAGE CORPORATION APPENDIX

     This Appendix shall apply only to Participants (“Knutson Participants”) on whose behalf an account balance under the Knutson Savings Tax Deferred 401(k) Plan (the “Knutson Plan”) was transferred to this Plan as of the Knutson Plan’s Merger Date.

     The following provisions shall apply in lieu of, or as a modification or addition to, corresponding provisions contained elsewhere in this Plan (as indicated by a corresponding Section or subsection designation or Section heading) or, if there is no corresponding provision elsewhere in the Plan, in addition to the other terms of this Plan:

     1.57 Period of Service. Notwithstanding the provisions of Section 1.57, the Period of Service credited to a Knutson Participant for the Plan Year beginning January 1, 1997, shall be determined in accordance with the terms of the Knutson Plan as in effect on June 1, 1997, and the Knutson Plan’s Merger Date shall be deemed to be January 1, 1998, solely for purposes applying Section 1.57.

     6.6 Special Vesting Rule Applicable to Knutson Participants. Notwithstanding the provisions of Sections 6.2 and 6.3 hereof, the vested and nonforfeitable percentage of a Knutson Participant’s Company Retirement Contributions Account, Employer Matching Contributions Account and any Supplemental Contributions Account shall not be less than as determined in accordance with the following schedule:

	Nonforfeitable
Period of Service	Percentage
Less than 1		0
1		33	%
2		66	%
3		100	%

     7.5 Change in Existing Investments. (a) The proviso to Section 7.5(a) of the Plan shall not apply to a Knutson Participant’s Merged Plan Employer Matching Contributions Subaccount, which subaccount shall account for that portion of a Knutson Participant’s Employer Matching Contributions Account that is attributable to employer matching contributions transferred to this Plan from the Knutson Plan.

     9.1 Distribution of Benefits upon Occurrence of Distribution Event. Notwithstanding the provisions of Section 9.1(a), in no event shall the Trustee distribute the vested Account Balance of a

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Knutson Participant prior to April 1 of the calendar year following the Knutson Participant’s attainment of age seventy and a half (70¹/2), unless the Knutson Participant elects to receive such distribution.

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STOCKTON SAVINGS BANK APPENDIX

     This Appendix shall apply only to Participants (“Stockton Participants”) on whose behalf an account balance under the Stockton Savings Tax Deferred 401(k) Plan (the “Stockton Plan”) was transferred to this Plan as of the Stockton Plan’s Merger Date.

     The following provisions shall apply in lieu of, or as a modification or addition to, corresponding provisions contained elsewhere in this Plan (as indicated by a corresponding Section or subsection designation or Section heading) or, if there is no corresponding provision elsewhere in the Plan, in addition to the other terms of this Plan:

     2.1 Participation. Section 2.1(b) of the Plan shall apply to Stockton Participants as modified by adding the following sentence at the end thereof:

“Notwithstanding the foregoing, any Employee who as of the Merger Date of the Stockton Plan was eligible to participate in such plan shall become a Participant in this Plan as of such Merger Date.”

     6.6 Special Vesting Rule Applicable to Stockton Participants. Notwithstanding the provisions of Sections 6.2 and 6.3 hereof, a Stockton Participant’s Company Retirement Contributions Account, Employer Matching Contributions Account, and Supplemental Contributions Account shall be fully vested and nonforfeitable effective June 27, 1997.

     7.5 Change in Existing Investments. (a) The proviso to Section 7.6(a) of the Plan shall not apply to a Stockton Participant’s Merged Plan Employer Matching Contributions Subaccount, which subaccount shall account for that portion of a Stockton Participant’s Employer Matching Contributions Account that is attributable to employer matching contributions transferred to this Plan from the Stockton Plan.

WESTERN CITIES MORTGAGE CORPORATION APPENDIX

     This Appendix shall apply only to Participants (“Western Cities Participants”) on whose behalf an account balance under the Western Cities Mortgage Corporation Retirement Savings Plan (the “Western Cities Plan”) was transferred to this Plan as of the Western Cities Plan’s Merger Date.

     The following provisions shall apply in lieu of, or as a modification or addition to, corresponding provisions contained elsewhere in this Plan (as indicated by a corresponding Section or subsection designation or Section heading) or, if there is no corresponding provision elsewhere in the Plan, in addition to the other terms of this Plan:

     1.57 Period of Service. Notwithstanding the provisions of Section 1.57, the Period of Service credited to a Western Cities Participant for the Plan Year beginning January 1, 1997, shall be determined in accordance with the terms of the Western Cities Plan as in effect on August 1, 1997, and the Western Cities Plan’s Merger Date shall be deemed to be January 1, 1998, solely for purposes applying Section 1.57.

     6.6 Special Vesting Schedule Applicable to Western Cities Participants. Notwithstanding the provisions of Sections 6.2 and 6.3 hereof, the vested and nonforfeitable percentage of a Western Cities Participant’s Company Retirement Contributions Account, Employer Matching Contributions Account, and Supplemental Contributions Account shall not be less than as determined in accordance with the following schedule:

Period of	Nonforfeitable
Service	Percentage
Less than 2		0
2		20	%
3		40	%
4		60	%
5		100	%

TEXAS NATIONAL AGENCY, INC. APPENDIX

     This Appendix shall apply only to Participants (“TNA Participants”) on whose behalf an account balance under the Texas National Agency 401(k) Savings/Profit Sharing & Retirement Plan (the “TNA Plan”) was transferred to this Plan as of the TNA Plan’s Merger Date.

     The following provisions shall apply in lieu of, or as a modification or addition to, corresponding provisions contained elsewhere in this Plan (as indicated by a corresponding Section or subsection designation or Section heading) or, if there is no corresponding provision elsewhere in the Plan, in addition to the other terms of this Plan:

     1.57 Period of Service. Notwithstanding the provisions of Section 1.57, the Period of Service credited to a Participant for the Plan Year beginning January 1, 1997, shall be determined in accordance with the terms of the TNA Plan as in effect on October 1, 1997, and the TNA Plan’s Merger Date shall be deemed to be January 1, 1998, solely for purposes of applying Section 1.57.

     6.6 Special Vesting Schedule Applicable to TNA Participants. Notwithstanding the provisions of Sections 6.2 and 6.3 hereof, the vested and nonforfeitable percentage of a TNA Participant’s Company Retirement Contributions Account, Employer Matching Contributions Account, and Supplemental Contributions Account shall not be less than as determined in accordance with the following schedule:

Period of	Nonforfeitable
Service	Percentage
Less than 2		0
2		20	%
3		40	%
4		60	%
5		100	%

HEMET FEDERAL SAVINGS AND LOAN
ASSOCIATION APPENDIX

     This Appendix shall apply only to Participants (“Hemet Participants”) on whose behalf an account balance under the Hemet Federal Savings and Loan Association Employee Savings & Investment Plan (the “Hemet Plan”) was transferred to this Plan as of the Hemet Plan’s Merger Date.

     The following provisions shall apply in lieu of, or as a modification or addition to, corresponding provisions contained elsewhere in this Plan (as indicated by a corresponding Section or subsection designation or Section heading) or, if there is no corresponding provision elsewhere in the Plan, in addition to the other terms of this Plan:

     2.1 Participation. Section 2.1(b) of the Plan shall apply to Hemet Participants as modified by adding the following sentence at the end thereof:

“Notwithstanding the foregoing, any Employee who as of the Merger Date of the Hemet Plan was eligible to participate in the Hemet Plan as of such date shall become a Participant in this Plan as of such Merger Date.”

     6.6 Special Vesting Rule Applicable to Hemet Participants. Notwithstanding the provisions of Section 6.3 hereof, the Employer Matching Contributions Account of a Hemet Participant who was employed by Hemet Federal Savings and Loan Association (“Hemet”) on or after January 1, 1999 shall be fully vested and nonforfeitable effective as of the Hemet Plan’s Merger Date.

     7.5 Change in Existing Investments. (a) The proviso to Section 7.5(a) of the Plan shall not apply to a Hemet Participant’s Hemet Plan Employer Matching Contributions Subaccount, which subaccount shall account for that portion of a Hemet Participant’s Employer Matching Contributions Account that is attributable to employer matching contributions transferred to this Plan from the Hemet Plan.

     9.1 Distribution of Benefits upon Occurrence of Distribution Event. Notwithstanding the provisions of Section 9.1(b), in no event shall the Trustee distribute the vested Account Balance of a Hemet Participant prior to April 1 of the calendar year following the Hemet Participant’s attainment of age seventy and a half (70¹/2), unless the Hemet Participant elects to receive such distribution.

     9.4 Certain Rules Applicable to the Payment of Benefits. The last sentence of Section 9.4 is modified with respect to Hemet Participants to read as follows:

“Effective June 1, 1998, this Section 9.4 shall apply only to a Participant who either (i) is a five percent (5%) owner (as defined in Section 416 of the Code) with respect to the Plan Year during which the Participant attains age 70¹/2, (ii) attained age 70¹/2 prior to June 1, 1998, or (iii) attains age 70¹/2 on or after June 1, 1998 and prior to September 1, 1999 and elects to have this Section 9.4 so apply.

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MINIMUM DISTRIBUTION APPENDIX

1. General Rules.

     1.1 Effective Date. The provisions of this Appendix will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

     1.2 Precedence. The requirements of this Appendix will take precedence over any inconsistent provisions of the Plan.

     1.3 Requirements of Treasury Regulations Incorporated. All distributions required under this Appendix will be determined and made in accordance with the Treasury Regulations under Section 401(a)(9) of the Code.

     1.4 TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Appendix, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

2. Time and Manner of Distribution.

     2.1 Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

     2.2 Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

          (a) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then, except as provided in Section 6 hereof, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70¹/2, if later.

          (b) If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then, except as provided in Section 6 hereof, distributions to the Designated Beneficiary will

begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

          (c) If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

          (d) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 2.2, other than Section 2.2(a), will apply as if the surviving spouse were the Participant.

For purposes of this Section 2.2 and Section 4 hereof, unless Section 2.2(d) hereof applies, distributions are considered to begin on the Participant’s Required Beginning Date. If Section 2.2(d) hereof applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 2.2(a) hereof. If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 2.2(a) hereof), the date distributions are considered to begin is the date distributions actually commence.

     2.3 Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year, distributions will be made in accordance with Sections 3 and 4 hereof. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the Treasury Regulations.

3. Required Minimum Distributions During Participant’s Lifetime.

     3.1 Amount of Required Minimum Distribution for Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

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          (a) the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

          (b) if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the Distribution Calendar Year.

     3.2 Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 3 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death.

4. Required Minimum Distributions After Participant’s Death.

     4.1 Death on or After Date Distributions Begin.

          (a) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows:

               (i) The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

               (ii) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving spouse’s death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of

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the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

               (iii) If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

          (b) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

     4.2 Death Before Date Distributions Begin.

          (a) Participant Survived by Designated Beneficiary. Except as provided in Section 6 hereof, if the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in Section 4.1 hereof.

          (b) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

          (c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 2.2(a) hereof, this Section 4.2 will apply as if the surviving spouse were the Participant.

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5. Definitions.

     5.1 “Designated Beneficiary” means the individual who is designated as the beneficiary pursuant to Section 2.1(e) of the Plan and is the designated beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

     5.2 “Distribution Calendar Year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 2.2 hereof. The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

     5.3 “Life Expectancy” means life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

     5.4 “Participant’s Account Balance” means the Account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (“Valuation Calendar Year”) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the Valuation Calendar Year after the Valuation Date and decreased by distributions made in the Valuation Calendar Year after the Valuation Date. The Account balance for the Valuation Calendar Year includes any amounts rolled over or transferred to the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed or transferred in the Valuation Calendar Year.

     5.5 “Required Beginning Date” means April 1 of the calendar year following the later of (a) the calendar year in which the attains age 70¹/2, or (b) the calendar year in which the Participant retires; provided, however, that the preceding clause (b) shall not apply in the case of any Participant who is a 5-percent owner (as defined in Section 416 of the Code) with respect to the plan year ending in the calendar year in which the Participant attains age 70¹/2.

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     6. Election to Apply 5-Year Rule to Distributions to Designated Beneficiaries. If the Participant dies before distributions begin and there is a Designated Beneficiary, distribution to the Designated Beneficiary is not required to begin by the date specified in Section 2.2 hereof, but the Participant’s entire interest will be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to either the Participant or the surviving spouse begin, this election will apply as if the surviving spouse were the Participant. This election will apply to all distributions to Designated Beneficiaries.

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EX-10.5

Exhibit 10.5

GUARANTY FINANCIAL GROUP INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(as amended and restated effective as of November 28, 2007)

ARTICLE 1

Intent

     This Guaranty Financial Group Inc. Supplemental Executive Retirement Plan is maintained by Guaranty Financial Group Inc. for the purpose of providing supplemental retirement benefits to eligible employees.

ARTICLE 2

Definitions

     2.1 “Administrator” means the person(s) or committee appointed to administer the Retirement Plan.

     2.2 “Affiliate” means any trade or business, whether or not incorporated, that together with the Company is treated as a single employer under Section 414(b) or 414(c) of the Code.

     2.3 “Beneficiary” means the person(s) to whom the Participant’s accrued benefit under the Retirement Plan is payable upon the Participant’s death.

     2.4 “Board” means the Board of Directors of the Company.

     2.5 “Code” means the Internal Revenue Code of 1986, as amended.

     2.6 “Company” means Guaranty Financial Group Inc. and any successor thereto.

     2.7 “Participant” means each person who is identified as a Participant for purposes of Articles 4 and/or 5 hereof.

     2.8 “Plan” means the Guaranty Financial Group Inc. Supplemental Executive Retirement Plan, as set forth herein and amended from time to time. For periods prior to the date of this amendment and restatement, the term “Plan” means the Excess Benefits Plan of Temple-Inland Financial Services Inc. and the Supplemental Benefits Plan of Temple-Inland Financial Services Inc.

     2.9 “Profit Sharing Contributions” means Profit Sharing Contributions under the Retirement Plan and such other contributions under such plans, if any, as may be designated in an appendix hereto. For periods prior to January 1, 2008, the term Profit Sharing Contributions means Company Retirement Contributions under the Retirement Plan.

     2.10 “Profit Sharing Contributions Account” means a Participant’s “Profit Sharing Contributions Account” under the Retirement Plan and such other accounts under such plans, if any, as may be designated in an appendix hereto. For periods prior to January 1, 2008, the term Profit Sharing Contributions Account means the Participant’s Company Retirement Contributions Account.

     2.11 “Retirement Benefit” has the meaning set forth in Article 3 hereof.

     2.12 “Retirement Plan” means the Guaranty Financial Group Inc. Savings and Retirement Plan, as amended from time-to-time, and any successor thereto.

     2.13 “Termination of Employment” means a Participant’s “separation from service” (within the meaning of Section 409A of the Code) with the Company and its Affiliates.

ARTICLE 3

Amount of Retirement Benefit Under Plan

     A Participant’s “Retirement Benefit” under this Plan shall be the sum of the Participant’s Section 415 Retirement Benefit (if any) under Article 4 and the Participant’s Section 401(a)(17) Retirement Benefit (if any) under Article 5.

ARTICLE 4

Section 415 Retirement Benefit

     4.1 Eligibility. Each person who is a participant in the Retirement Plan shall be a “Participant” for purposes of this Article 4 and shall be eligible to receive a Section 415 Retirement Benefit in accordance with, and subject to the terms of, this Article 4.

     4.2 Section 415 Retirement Benefit. A Participant shall be entitled to receive upon Termination of Employment, a Section 415 Retirement Benefit that is equal to the sum of:

     (a) the excess, if any, of (i) the amount of Profit Sharing Contributions that would have been credited from time-to-time to the Participant’s Profit Sharing Contributions Account under the Retirement Plan assuming that the limitations imposed on benefits provided under the Retirement Plan by reason of Section 415 of the Code did not apply over (ii) the amount of Profit Sharing Contributions actually credited from time-to-time to the Participant’s Profit Sharing Contributions Account under the Retirement Plan (the excess of (i) over (ii) being “Section 415 Contributions”); and

     (b) an amount equal to the return that the Section 415 Contributions would have earned (or lost) if they had been invested in the U.S. Treasury Fund (within the meaning of the Retirement Plan), assuming that the Section 415 Contributions had been credited to the Participant’s Profit Sharing Contributions Account as of the first day of the calendar year immediately following the calendar year for which the Section 415 Contribution would have been credited to the Participant’s Profit Sharing Contributions Account but for the limitations imposed on benefits provided under the Retirement Plan by reason of Section 415 of the Code.

ARTICLE 5

Section 401(a)(17) Retirement Benefit

     5.1 Eligibility. Each person who is a participant in the Retirement Plan shall be a “Participant” for purposes of this Article 5 and shall be eligible to receive a Section 401(a)(17) Retirement Benefit in accordance with, and subject to the terms of, this Article 5.

     5.2 Section 401(a)(17) Retirement Benefit. A Participant shall be entitled to receive upon Termination of Employment, a Section 401(a)(17) Retirement Benefit that is equal to the sum of:

     (a) the excess, if any, of (i) the amount of Profit Sharing Contributions that would have been credited from time-to-time to the Participant’s Profit Sharing Contributions Account under the Retirement Plan assuming that the limitations imposed on benefits provided under the Retirement

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Plan by reason of Section 401(a)(17) of the Code did not apply over (ii) the amount of Profit Sharing Contributions actually credited from time-to-time to the Participant’s Profit Sharing Contributions Account under the Retirement Plan (the excess of (i) over (ii) being “Section 401(a)(17) Contributions”); and

     (b) an amount equal to the return that the Section 401(a)(17) Contributions would have earned (or lost) if they had been invested in the U.S. Treasury Fund (within the meaning of the Retirement Plan), assuming that the Section 401(a)(17) Contributions had been credited to the Participant’s Profit Sharing Contributions Account as of the first day of the calendar year immediately following the calendar year for which the Section 401(a)(17) Contribution would have been credited to the Participant’s Profit Sharing Contributions Account but for the limitations imposed on benefits provided under the Retirement Plan by reason of Section 401(a)(17) of the Code.

Notwithstanding the foregoing provisions of this Article 5, the amount otherwise payable to a Participant pursuant to this Article 5 shall be reduced to the extent that the sum of (a) the amount payable pursuant to the terms of this Article 5, (b) any amount payable to the Participant under Article 4 hereof, and (c) amounts payable under the Retirement Plan with respect to the Participant’s Profit Sharing Contributions Account, exceed the amount that would be payable under the Retirement Plan with respect to the Participant’s Profit Sharing Contributions Account but for the application of Section 401(a)(17) and Section 415 of the Code (determined by assuming that amounts credited in excess of such limits are credited at the time specified in Section 4.2(b) and that such amounts are invested as provided therein). For purposes of this Article 5, a Participant’s commissions, if any, shall not be included in the definition of “Compensation” as used under the Retirement Plan.

     5.3 Pre-2008 Deferred Compensation. For calendar years beginning before January 1, 2008, the amount determined under clause (a)(i) of Section 5.2 shall include an amount equal to the amount that would have been credited to the Participant’s Company Retirement Contributions Account if Deferred Compensation (as defined in the Supplemental Benefits Plan of Temple-Inland Financial Services Inc. as in effect prior to the date of this amendment and restatement) were taken into account (at the time such Deferred Compensation would otherwise have been taken into account) in determining Company Retirement Contributions.

ARTICLE 6

Payment of Benefits; Vesting

     6.1 Termination of Employment On or After January 1, 2008. In the case of a Participant who incurs a Termination of Employment on or after January 1, 2008, the Participant’s Retirement Benefit shall be paid in the form of a lump-sum payment payable as soon as practicable after the Participant’s Termination of Employment (and in all events within [thirty] days after such Termination of Employment).

     6.2 Termination of Employment Before January 1, 2008. In the case of a Participant who incurs a Termination of Employment before January 1, 2008, the Participant’s Retirement Benefit shall be paid to the Participant in accordance with the terms of the Plan as in effect prior to the date of this amendment and restatement, any “Participant Consent to Payment” or “Consent to Distribution”, and the requirements of Section 409A of the Code.

     6.3 Certain Consents to Payment. Notwithstanding anything in this Article 6 to the contrary and whether or not the Participant has incurred a Termination of Employment, in the case of any Participant who has executed a Consent to Distribution or a Consent to Payment relating to this Plan, the Participant’s Retirement Benefit shall be paid in accordance with such Consent to Distribution or Consent to Payment.

     6.4 Section 409A Mandatory Delay in Benefit Payments for Specified Employees. Notwithstanding the preceding provisions of this Article 6, to the extent required by Section 409A of the

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Code, the Administrator shall delay payment of the Retirement Benefit of a Participant who is a “specified employee” (within the meaning of Section 409A of the Code) until the earlier of (a) the date that is six months after the date of the Participant’s Termination of Employment, or (b) the date of the specified employee’s death. The aggregate amount of payment(s) otherwise payable during the delay period (plus interest thereon at a rate equal to [the simple average of the rate for the last four reporter quarters preceding the Participant’s Termination of Employment under the U.S. Treasury Fund (within the meaning of the Retirement Plan)] shall be payable to the specified employee upon the expiration of the delay period.

     6.5 Survivor Benefits. In the event of a Participant’s death prior to payment of a Retirement Benefit to which the Participant would otherwise be entitled hereunder, the amount that would otherwise have been paid to the Participant (determined as of the date of the Participant’s death) shall be paid to the Participant’s Beneficiary. Any survivor benefits payable to a Beneficiary pursuant to this Plan shall be paid on the first day of the second calendar month following the Participant’s death.

     6.6 Vesting of Retirement Benefits. A Participant’s Retirement Benefit shall become fully vested as of the date that the Participant’s Profit Sharing Contributions Account is fully vested (the “Vesting Date”). In the event of a Participant’s Termination of Employment prior to the Participant’s Vesting Date, the Participant shall not be entitled any Retirement Benefit hereunder and any such Retirement Benefit shall be forfeited in its entirety.

ARTICLE 7

Claims

     7.1 Claims Procedure. Claims for benefits under the Plan shall be filed with the Administrator. If any Participant or other payee (a “claimant”) claims to be entitled to a benefit under the Plan and the Administrator determines that such claim should be denied in whole or in part, the Administrator shall notify such claimant of its decision in writing (which may be provided electronically). Such notification will be written in a manner calculated to be understood by the claimant and will contain (a) specific reasons for the denial, (b) specific reference to pertinent Plan provisions, (c) a description of any additional material or information necessary for the claimant to perfect such claim and an explanation of why such material or information is necessary, and (d) a description of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following the rendering of an adverse decision on review. Such notification will be given within a reasonable period of time, but not later than 90 days after the claim is received by the Administrator, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that such an extension of time is required, written notice of the extension shall be provided to the claimant prior to the end of the initial 90-day period. The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Administrator expects to render its decision. In no event shall the extension exceed an additional 90 days from the end of the initial 90-day period. Any electronic notification provided by the Administrator under this Article IV shall comply with the standards imposed by 29 C.F.R. 2520.104b-1(c)(1)(i)-(iv).

     7.2 Review Procedure.

          (a) Within 60 days after the date on which a claimant receives a written notice of a denied claim, the claimant may file a written request with the Administrator for a review of the denied claim. If the claimant requests a review of the denied claim, the claimant shall be entitled to submit to the Administrator written comments, documents, records and other information relating to the claim for benefits and to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits. The Administrator shall perform its review taking into account all comments, documents, records and other information submitted by the claimant relating to the claim without regard to whether such information was submitted or considered in the initial benefit determination. The Administrator will notify the claimant of its decision in writing (which

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may be provided electronically). If the claim is denied, the notification will be written in a manner calculated to be understood by the claimant and will contain (i) the specific reasons for the denial, (ii) references to pertinent provisions of the Plan, (iii) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits, and (iv) a statement of the claimant’s right to bring an action under Section 502(a) of ERISA.

          (b) The review provided for by Section 7.2(a) will be made within a reasonable period of time, but not later than 60 days after the Administrator receives the request for review, unless the Administrator determines that special circumstances require an extension of time for processing the claim. If the Administrator determines that an extension of time is required, written notice of the extension shall be furnished to the claimant prior to the end of the initial 60-day period. The extension notice shall indicate the special circumstances requiring the extension of time and the date by which the Administrator expects to render its decision. In no event shall the extension exceed an additional 60 days from the end of the initial 60-day period. If the extension of time is needed due to the claimant’s failure to submit information necessary to make a decision, the period during which the Administrator must make a decision shall be tolled from the date the extension notice is sent to the claimant until the date the claimant responds to the request for additional information.

ARTICLE 8

Administration

     This Plan shall be administered by the Administrator. The Administrator shall have all powers necessary to carry out the provisions of this Plan, including, without reservation, the power to delegate administrative matters to other persons and to interpret this Plan in its discretion.

ARTICLE 9

Miscellaneous

     9.1 Amendment or Termination. The Board may amend or terminate the Plan at any time; provided, however, that no amendment or termination of the Plan may reduce a Participant’s Retirement Benefit after it is vested without the consent of the Participant (or in the event of the Participant’s death, the Participant’s Beneficiary).

     9.2 Effect on Excess Benefits Plan and Supplemental Benefits Plan. The adoption of this amendment and restatement shall effectuate and constitute the amendment and restatement of the Excess Benefits Plan of Temple-Inland Financial Services Inc. and the Supplemental Benefits Plan of Temple-Inland Financial Services Inc. into a single plan document as of the date hereof.

     9.3 No Duplication of Benefits. Notwithstanding any provision of this Plan to the contrary, the Retirement Benefits payable under Articles 4 and 5 shall be determined and coordinated by the Administrator so as to prevent any duplication of benefits under this Plan or any other supplemental pension or retirement plan, program or agreement.

     9.4 No Alienation of Benefits. Participants and Beneficiaries shall have no right to alienate, anticipate, commute, sell, assign, transfer, pledge, encumber or otherwise convey the right to receive any payment under this Plan, and any payment under this Plan or rights thereto shall not be subject to the debts, liabilities, contracts, engagements or torts of Participants or Beneficiaries nor to attachment, garnishment or execution, nor shall they be transferable by operation of law in the event of bankruptcy or insolvency. Any attempt, whether voluntary or involuntary, to effect any such action shall be null, void, and of no effect.

     9.5 No Rights to Continued Employment. Nothing contained herein shall be construed as conferring upon a Participant the right to continue in the employ of the Company or any Affiliate.

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     9.6 Incapacity. If the Administrator determines that any Participant or Beneficiary is unable to care for his or her affairs because of illness or accident, any Retirement Benefit or survivor benefit payment due hereunder (unless a prior claim therefor shall have been made by a duly appointed guardian, committee, or other legal representative) may be paid to such Participant’s or Beneficiary’s spouse, child, brother or sister, or to any person deemed by the Administrator to have incurred expenses for such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liabilities of the Company hereunder.

     9.7 Withholding. The Company shall have the right to deduct from any payment to be made pursuant to this Plan or any other payment to be made to a Participant or Beneficiary by the Company or any of its affiliates any Federal, state or local taxes required by law to be withheld with respect to the participation of the Participant in this Plan and payments made hereunder.

     9.8 No Funding of Benefits. To the extent a Participant or any other person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company, and such person shall have only the unsecured promise of the Company that such payments shall be made.

     9.9 Top-Hat Plan; Excess Plan. The Plan, except with respect to the Section 415 Retirement Benefits provided pursuant to Article 4 hereof, is intended to qualify as a “top-hat” plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and shall cover a select group of management or highly compensated employees. The Section 415 Retirement Benefits provided pursuant to Article 4 hereof and related provisions of the Plan shall constitute a separate excess benefit plan within the meaning of Section 3(36) of ERISA.

     9.10 Headings. The headings of Sections hereof are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of the Plan.

     9.11 Applicable Law. This Plan shall be construed and enforced in accordance with the laws of the State of Texas, except to the extent preempted by federal law.

     9.12 Section 409A of the Code. The Plan is intended to comply with the requirements of Section 409A of the Code, and the Administrator shall administer and interpret the Plan in accordance with such requirements. If any provision of the Plan conflicts with the requirements of Section 409A of the Code, the requirements of Section 409A of the Code shall supersede any such Plan provision.

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EX-10.6

Exhibit 10.6

GUARANTY FINANCIAL GROUP INC.
2007 STOCK INCENTIVE PLAN

     1. Definitions. In the Plan, except where the context otherwise indicates, the following definitions shall apply:

     1.1. “Affiliate” means a corporation, partnership, business trust, limited liability company or other form of business organization at least a majority of the total combined voting power of all classes of stock or other equity interests of which is owned by the Company, either directly or indirectly, and any other entity, designated by the Committee.

     1.2. “Agreement” means a written agreement or other document evidencing an Award that shall be in such form as the Committee may specify. The Committee in its discretion may, but need not, require a Participant to sign an Agreement.

     1.3. “Award” means a grant of an Option, Restricted Stock, a Restricted Stock Unit, a Performance Award, or an Other Stock-Based Award.

     1.4. “Board” means the Board of Directors of the Company.

     1.5. “Code” means the Internal Revenue Code of 1986, as amended.

     1.6. “Committee” means the Management Development and Executive Compensation Committee of the Board or such other committee(s), subcommittee(s) or person(s) the Board appoints to administer the Plan or to make and/or administer specific Awards hereunder. If no such appointment is in effect at any time, “Committee” shall mean the Board. Notwithstanding the foregoing, “Committee” means the Board for purposes of granting Awards to members of the Board who are not Employees, and administering the Plan with respect to those Awards, unless the Board determines otherwise.

     1.7. “Common Stock” means the Company’s common stock, par value $1.00 per share.

     1.8. “Company” means Guaranty Financial Group Inc., and any successor thereto.

     1.9. “Date of Exercise” means the date on which the Company receives notice of the exercise of an Option in accordance with Section 7.1.

     1.10. “Date of Grant” means the date on which an Award is granted under the Plan.

     1.11. “Eligible Person” means any person who is (a) an Employee or (b) a member of the board of directors of the Company or an Affiliate, or (c) a consultant, or independent contractor to the Company or an Affiliate.

     1.12. “Employee” means any individual who the Committee determines to be an employee of the Company or an Affiliate.

     1.13. “Exercise Price” means the price per Share at which an Option may be exercised.

     1.14. “Fair Market Value” means, unless otherwise determined by the Committee, the closing price of a share of Common Stock on the New York Stock Exchange (“NYSE”) as of the relevant date; provided, however, that in the case of an Option, in all events Fair Market Value shall be determined pursuant to a method permitted by Section 409A of the Code for determining the fair market value of stock subject to a nonqualified stock option that does not provide for a deferral of compensation within the meaning of Section 409A of the Code.

     1.15. “Incentive Stock Option” means an Option that the Committee designates as an incentive stock option under Section 422 of the Code.

     1.16. “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.

     1.17. “Option” means an option to purchase Shares granted pursuant to Section 6.

     1.18. “Option Period” means the period during which an Option may be exercised.

     1.19. “Other Stock-Based Award” means an Award granted pursuant to Section 11.

     1.20. “Participant” means an Eligible Person who has been granted an Award.

     1.21. “Performance Award” means a performance award granted pursuant to Section 10.

     1.22. “Performance Goals” means performance goals that the Committee establishes, which may be based on satisfactory internal or external audits, achievement of balance sheet or income statement objectives, cash flow, customer satisfaction metrics and achievement of customer satisfaction goals, dividend payments, earnings (including before or after taxes, interest, depreciation, and amortization), earnings growth, earnings per share; economic value added, expenses, improvement of financial ratings, internal rate of return, market share, net asset value, net income, net operating gross margin, net operating profit after taxes (“NOPAT”), net sales growth, NOPAT growth, operating income, operating margin, comparisons to the performance of other companies, pro forma income, regulatory compliance, return measures (including return on assets, designated assets, capital, committed capital, net capital employed, equity, sales, or stockholder equity, and return versus the Company’s cost of capital), revenues, sales, stock price (including growth measures and total stockholder return), comparison to stock market indices, implementation or completion of one or more projects or transactions, working capital, or any other objective goals that the Committee establishes. Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Performance Goals may be particular to an Eligible Person or the department, branch, Affiliate, or division in which the Eligible Person works, or may be based on the performance of the Company, one or more Affiliates, or the Company and one or more Affiliates, and may cover such period as the Committee may specify.

     1.23. “Plan” means this Guaranty Financial Services Inc. 2007 Stock Incentive Plan, as amended from time to time.

     1.24. “Restricted Stock” means Shares granted pursuant to Section 8.

     1.25. “Restricted Stock Units” means an Award providing for the contingent grant of Shares (or the cash equivalent thereof) pursuant to Section 9.

     1.26. “Section 422 Employee” means an Employee who is employed by the Company or a “parent corporation” or “subsidiary corporation” (each as defined in Sections 424(e) and (f) of the Code) with respect to the Company, including a “parent corporation” or “subsidiary corporation” that becomes such after adoption of the Plan.

     1.27. “Share” means a share of Common Stock.

     1.28. “Ten-Percent Stockholder” means a Section 422 Employee who (applying the rules of Section 424(d) of the Code) owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a “parent corporation” or “subsidiary corporation” (each as defined in Sections 424(e) and (f) of the Code) with respect to the Company.

     2. Purpose. The Plan is intended to assist the Company and its Affiliates in attracting and retaining Eligible Persons of outstanding ability and to promote the identification of their interests with those of the stockholders of the Company and its Affiliates.

     3. Administration. The Committee shall administer the Plan and shall have plenary authority, in its discretion, to grant Awards to Eligible Persons, subject to the provisions of the Plan. The Committee shall have plenary authority and discretion, subject to the provisions of the Plan, to determine the Eligible Persons to whom it grants Awards, the terms (which terms need not be identical) of all Awards, including without limitation the Exercise Price of Options, the time or times at which Awards are granted, the number of Shares covered by Awards, whether an Option shall be an Incentive Stock Option or a Nonqualified Stock Option, any exceptions to nontransferability, any Performance Goals applicable to Awards, any provisions relating to vesting, and the periods during which Options may be exercised and Restricted Stock shall be subject to restrictions. In making these determinations, the Committee may take into account the nature of the services rendered or to be rendered by Award recipients, their present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall have plenary authority to interpret the Plan and Agreements, prescribe, amend and rescind rules and regulations relating to them, and make all other determinations deemed necessary or advisable for the administration of the Plan and Awards granted hereunder. The determinations of the Committee on the matters referred to in this Section 3 shall be binding and final. The Committee may delegate its authority under this Section 3 and the terms of the Plan to such extent it deems desirable and is consistent with the requirements of applicable law.

     4. Eligibility. Awards may be granted only to Eligible Persons, provided that (a) Incentive Stock Options may be granted only to Eligible Persons who are Section 422 Employees; and (b) Options may be granted only to persons with respect to whom Shares constitute stock of the service recipient (within the meaning of Section 409A of the Code and the Treasury Regulations thereunder).

     5. Stock Subject to Plan.

     5.1. Subject to adjustment as provided in Section 13, the maximum number of Shares that may be issued under the Plan is 4,200,000 Shares, provided that no more than 2,100,000 Shares may be issued pursuant to Awards that are not Options. Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been, or may be, reacquired by the Company in the open market, in private transactions, or otherwise.

     5.2. Subject to adjustment as provided in Section 13, the maximum number of Shares with respect to which an Employee may be granted Awards under the Plan during any calendar year is the number of shares which, in the aggregate, do not exceed $3 million in Fair Market Value as of their respective date of grant. The maximum number of Shares with respect to which an Employee has been granted Awards shall be determined in accordance with Section 162(m) of the Code.

     5.3. If an Option expires or terminates for any reason without having been fully exercised, if shares of Restricted Stock are forfeited, or if Shares covered by an Award are not issued or are forfeited, the unissued or forfeited Shares that had been subject to the Award shall be available for the grant of additional Awards.

     6. Options.

     6.1. Options granted under the Plan to Eligible Persons shall be either Incentive Stock Options or Nonqualified Stock Options, as designated by the Committee; provided, however, that Incentive Stock Options may be granted only to Eligible Persons who are Section 422 Employees on the Date of Grant. Each Option granted under the Plan shall be identified as either a Nonqualified Stock Option or an Incentive Stock Option and shall be evidenced by an Agreement that specifies the terms and conditions of the Option. Options shall be subject to the terms and conditions set forth in this Section 6 and such other terms and conditions not inconsistent with the Plan as the Committee may specify. The Committee, in its

discretion, may condition the grant or vesting of an Option upon the achievement of one or more specified Performance Goals.

     6.2. The Exercise Price of an Option granted under the Plan shall not be less than 100% of the Fair Market Value of the Common Stock on the Date of Grant. Notwithstanding the foregoing, in the case of an Incentive Stock Option granted to an Employee who, on the Date of Grant is a Ten-Percent Shareholder the Exercise Price shall not be less than 110% of the Fair Market Value of a Share on the Date of Grant.

     6.3. The Committee shall determine the Option Period for an Option, which shall be specifically set forth in the Agreement; provided that an Option shall not be exercisable after ten years (five years in the case of an Incentive Stock Option granted to an Employee who on the Date of Grant is a Ten-Percent Stockholder) from its Date of Grant.

     6.4. To the extent provided in an Agreement, a Participant may surrender to the Company an Option (or a portion thereof) that has become exercisable and receive upon such surrender, without any payment to the Company (other than required tax withholding amounts) that number of Shares (equal to the highest whole number of Shares) having an aggregate Fair Market Value as of the date of surrender equal to that number of Shares subject to the Option (or portion thereof) being surrendered multiplied by an amount equal to the excess of (i) the Fair Market Value on the date of surrender over (ii) the Exercise Price, plus an amount of cash equal to the fair market value of any fractional Share to which the Participant would be entitled but for the parenthetical above relating to the issuance of a whole number of Shares. Any such surrender shall be treated as the exercise of the Option (or portion thereof).

     7. Exercise of Options.

     7.1. Subject to the terms of the applicable Agreement, an Option may be exercised, in whole or in part, by delivering to the Company a notice of the exercise, in such form as the Committee may prescribe, accompanied, in the case of an Option, by (a) full payment for the Shares with respect to which the Option is exercised or (b) to the extent provided in the applicable Agreement, irrevocable instructions to a broker to deliver promptly to the Company cash equal to the exercise price of the Option.

     7.2. To the extent provided in the applicable Agreement or otherwise authorized by the Committee, payment may be made by delivery (including constructive delivery) of Shares (provided that such Shares, if acquired pursuant to an Option or other Award granted hereunder or under any other compensation plan maintained by the Company or any Affiliate, have been held by the Participant for at least six months, or such other period, if any, as the Committee may specify), valued at Fair Market Value on the Date of Exercise.

     8. Restricted Stock Awards. Each grant of Restricted Stock under the Plan shall be subject to an Agreement specifying the terms and conditions of the Award. Restricted Stock granted under the Plan shall consist of Shares that are restricted as to transfer, subject to forfeiture, and subject to such other terms and conditions as the Committee may specify. Such terms and conditions may provide, in the discretion of the Committee, for the lapse of such transfer restrictions or forfeiture provisions to be contingent upon the achievement of one or more specified Performance Goals.

     9. Restricted Stock Unit Awards. Each grant of Restricted Stock Units under the Plan shall be evidenced by an Agreement that (a) provides for the issuance of Shares to a Participant at such time(s) as the Committee may specify and (b) contains such other terms and conditions as the Committee may specify, including terms that condition the issuance of Restricted Stock Unit Awards upon the achievement of one or more specified Performance Goals.

     10. Performance Awards. Each Performance Award granted under the Plan shall be evidenced by an Agreement that (a) provides for the payment of cash and/or issuance of Shares to a Participant contingent upon the attainment of one or more specified Performance Goals, and (b) contains such other terms and conditions as the Committee may specify. For purposes of Section 5.2 hereof, a Performance

Award shall be deemed to cover a number of Shares equal to the maximum number of Shares that may be issued upon payment of the Award if the terms of the Award provide for payment in the form of Shares. The maximum cash amount payable to any Employee pursuant to all Performance Awards granted to an Employee during a calendar year shall not exceed $5 million.

     11. Other Stock-Based Awards. The Committee may in its discretion grant stock-based awards (including awards based on dividends) of a type other than those otherwise provided for in the Plan, including the issuance or offer for sale of unrestricted Shares (“Other Stock-Based Awards”). Other Stock-Based Awards shall cover such number of Shares and have such terms and conditions as the Committee shall determine, including terms that condition the payment or vesting the Other Stock-Based Award upon the achievement of one or more Performance Goals.

     12. Dividends and Dividend Equivalents. The terms of an Award may provide a Participant with the right, subject to such terms and conditions as the Committee may specify, to receive dividend payments or dividend equivalent payments with respect to Shares covered by the Award, which payments may be either made currently or credited to an account established for the Participant, and may be settled in cash or Shares, as determined by the Committee.

     13. Capital Events and Adjustments. In the event of any change in the outstanding Common Stock by reason of any stock dividend, stock split, reverse stock split, spin-off, recapitalization, reclassification, combination or exchange of shares, merger, consolidation, liquidation or the like, the Committee shall provide for a substitution for or adjustment in (a) the number and class of securities subject to outstanding Awards or the type of consideration to be received upon the exercise or vesting of outstanding Awards, (b) the Exercise Price of Options, and (c) the aggregate number and class of Shares for which Awards thereafter may be granted under the Plan.

     14. Termination or Amendment. The Board may amend or terminate the Plan in any respect at any time; provided, however, that, after the stockholders of the Company have approved the Plan, the Board shall not amend or terminate the Plan without approval of (a) the Company’s stockholders to the extent stockholder approval of the amendment is required by applicable law or regulations or the requirements of the principal exchange or interdealer quotation system on which the Common Stock is listed or quoted, if any, and (b) each affected Participant if such amendment or termination would adversely affect such Participant’s rights or obligations under any Award granted prior to the date of such amendment or termination.

     15. Modification, Substitution of Awards.

     15.1. Subject to the terms and conditions of the Plan, the Committee may modify the terms of any outstanding Awards; provided, however, that (a) no modification of an Award shall, without the consent of the Participant, alter or impair any of the Participant’s rights or obligations under such Award and (b) subject to Section 13, in no event may an Option be (i) modified to reduce the Exercise Price of the Option or (ii) cancelled or surrendered in consideration for the grant of a new Option with a lower Exercise Price.

     15.2. Any provision of the Plan or any Agreement to the contrary notwithstanding, in the event of a merger or consolidation to which the Company is a party, the Committee shall take such actions, if any, as it deems necessary or appropriate to prevent the enlargement or diminishment of Participants’ rights under the Plan and Awards granted hereunder, and may, in its discretion, cause any Award granted hereunder to be canceled in consideration of a payment equal to the fair value of the canceled Award, as determined by the Committee in its discretion. The fair value of an Option shall be deemed to be equal to the product of (a) the number of Shares the Option covers (and has not previously been exercised) and (b) the excess, if any, of the Fair Market Value of a Share as of the date of cancellation over the Exercise Price of the Option.

     15.3. The Committee shall issue Awards hereunder, as contemplated by and provided in, the Employee Matters Agreement by and among Temple-Inland Inc., Guaranty Financial Group Inc. and Forestar Real Estate Group Inc. (the “Employee Matters Agreement”), to reflect the conversion of, and

adjustments to, awards granted under the Temple-Inland Stock Plans (as defined in the Employee Matters Agreement).

     16. Foreign Employees. Without amendment of the Plan, the Committee may grant Awards to Eligible Persons who are subject to the laws of foreign countries or jurisdictions on such terms and conditions different from those specified in the Plan as may in the judgement of the Committee be necessary or desirable to foster and promote achievement of the purposes of the Plan. The Committee may make such modifications, amendments, procedures, sub-plans and the like as may be necessary or advisable to comply with provisions of laws of other countries or jurisdictions in which the Company or any Affiliate operates or has employees.

     17. Withholding. The Company’s obligation to issue or deliver Shares or pay any amount pursuant to the terms of any Award granted hereunder shall be subject to satisfaction of applicable federal, state, local, and foreign tax withholding requirements. To the extent provided in the applicable Agreement and in accordance with rules as the Committee may prescribe, a Participant may satisfy any such withholding tax obligation by one or any combination of the following means: (a) tendering a cash payment, (b) authorizing the Company to withhold Shares otherwise issuable to the Participant, or (c) delivering to the Company already-owned and unencumbered Shares.

     18. Term of Plan. Unless sooner terminated by the Board pursuant to Section 14, the Plan shall terminate on the date that is ten years after the earlier of that date that the Plan is adopted by the Board or approved by the Company’s stockholders, and no Awards may be granted or awarded after such date. The termination of the Plan shall not affect the validity of any Award outstanding on the date of termination.

     19. Indemnification of Committee. In addition to such other rights of indemnification as they may have as members of the Board or Committee, the Company shall indemnify members of the Committee against all reasonable expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted hereunder, and against all amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, if such members acted in good faith and in a manner which they believed to be in, and not opposed to, the best interests of the Company.

     20. General Provisions.

     20.1. The establishment of the Plan shall not confer upon any Eligible Person any legal or equitable right against the Company, any Affiliate or the Committee, except as expressly provided in the Plan. Participation in the Plan shall not give an Eligible Person any right to be retained in the service of the Company or any Affiliate.

     20.2. Neither the adoption of the Plan nor its submission to the Company’s stockholders shall be taken to impose any limitations on the powers of the Company or its Affiliates to issue, grant or assume options, warrants, rights, restricted stock or other awards otherwise than under the Plan, or to adopt other stock option, restricted stock, or other plans, or to impose any requirement of stockholder approval upon the same.

     20.3. The interests of any Eligible Person under the Plan are not subject to the claims of creditors and may not, in any way, be assigned, alienated or encumbered except to the extent provided in an Agreement.

     20.4. The Plan shall be governed, construed and administered in accordance with the laws of the State of Texas, without giving effect to the conflict of law principles.

     20.5. The Committee may require each person acquiring Shares pursuant to Awards granted hereunder to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. The certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares issued pursuant to the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or interdealer quotation system upon which the Common Stock is then quoted, and any applicable federal or state securities laws. The Committee may place a legend or legends on any such certificates to make appropriate reference to such restrictions.

     20.6. The Company shall not be required to issue any certificate or certificates for Shares with respect to Awards granted under the Plan, or record any person as a holder of record of such Shares, without obtaining, to the complete satisfaction of the Committee, the approval of all regulatory bodies the Committee deems necessary, and without complying, to the Board’s or Committee’s complete satisfaction, with all rules and regulations under federal, state or local law the Committee deems applicable.

     20.7. To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of Shares, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange or automated dealer quotation system on which the Shares are traded. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of any fractional Shares or whether any fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.

     20.8. Notwithstanding any other provision of the Plan to the contrary, to the extent any Award (or a modification of an Award) under the Plan results in the deferral of compensation (for purposes of Section 409A of the Code), the terms and conditions of the Award shall comply with Section 409A of the Code.

EX-10.7

Exhibit 10.7

GUARANTY FINANCIAL GROUP INC.

DIRECTORS’ FEE DEFERRAL PLAN

ARTICLE 1

Definitions

     When used herein the following terms shall have the following meanings:

     1.1. “Account” means the Account maintained for each Participant in accordance with the terms of Article 3 hereof.

     1.2. “Affiliate” means each trade or business, whether or not incorporated, that together with the Company, is treated as a “single employer” under Section 414(b) or 414(c) of the Code.

     1.3. “Administrator” means the Board or such person(s) as may be designated by the Board to administer this Plan.

     1.4. “Board” means the Board of Directors of the Company.

     1.5. “Board Fees” means annual retainer fees (including Non-Executive Chair Retainer Fees) and meeting fees payable to an Eligible Director with respect to the Eligible Director’s service on the Board and/or one or more Board committees.

     1.6. “Change in Control” means the occurrence of a “change in control event” (within the meaning of Section 409A of the Code) with respect to the Company.

     1.7. “Code” means the Internal Revenue Code of 1986, as amended.

     1.8. “Common Stock” means the common stock, $1.00 par value, of the Company and, in the event such common stock is converted to another security or property, such other security or property.

     1.9. “Company” means Guaranty Financial Group Inc., a Delaware corporation, and its successors by merger, sale of assets or otherwise.

     1.10. “Crediting Date” means the date on which Board Fees would have been paid to an Eligible Director absent the Deferral Election covering such Board Fees.

     1.11. “Deferral Election” means an irrevocable election by an Eligible Director, made on a form prescribed by the Administrator and delivered to the Administrator, to defer under this Plan the receipt of all or a specified portion of Board Fees otherwise payable to the Eligible Director. A Deferral Election shall be effective when the form is countersigned on behalf of the Company.

     1.12. “Eligible Director” means a member of the Board who is not also an employee of the Company or any of its Affiliates.

     1.13. “Fair Market Value” means, unless otherwise determined by the Administrator, the closing price of a share of Common Stock on the New York Stock Exchange (“NYSE”) as of the relevant

date (or if the NYSE is not open on such date or the Common Stock is not traded on that day, the most recent prior date that the NYSE was open for trading and the Common Stock was traded).

     1.14. “Matching Restricted Stock Units” means Matching Restricted Stock Units as defined in Section 3.3 hereof.

     1.15. “Non-Executive Chair Retainer Fees” means Board Fees that are payable to an Eligible Director with respect to the Eligible Director’s service on the Board as a non-executive chairperson.

     1.16. “Participant” means an Eligible Director who files a Deferral Election or is credited with Retainer Shares pursuant to the terms of the Plan.

     1.17. “Restricted Stock Units” means hypothetical shares of Common Stock credited to a Participant’s Account having a value equal to the Fair Market Value of an equal number of shares of Common Stock.

     1.18. “Plan” means the Guaranty Financial Group Inc. Directors’ Fee Deferral Plan, as set forth herein and amended from time to time.

     1.19. “Retainer Shares” means Restricted Stock Units credited to a Participant’s Account pursuant to Section 2.2 hereof.

     1.20. “Separation from Service” means a “separation from service” (with the meaning of Section 409A of the Code) from the Company and its Affiliates.

     1.21. “Stock Plan” means the Guaranty Financial Group Inc. 2007 Stock Incentive Plan and any other plan adopted by the Company that provides for the grant of stock options, phantom stock, or restricted stock to members of the Board.

     1.22. “Unforeseeable Emergency” means an “unforeseeable emergency” within the meaning of Section 409A of the Code.

ARTICLE 2

Participation; Deferred Board Fees

     2.1. Participation. Each Eligible Director shall be a Participant in this Plan.

     2.2. Retainer Shares. On the date of the first regularly scheduled Board meeting each year, each Eligible Director’s Account shall be credited with a number of Restricted Stock Units equal to the quotient obtained by dividing (a) $75,000 (effective January 1, 2008) by (b) the Fair Market Value of a share of Common Stock as of such date.

     2.3. Board Fee Deferrals. An Eligible Director may elect to defer hereunder the receipt of all or a portion of Board Fees payable to the Eligible Director by filing with the Administrator a Deferral Election prior to the start of the calendar year during which the Board Fees covered by the Deferral Election will be paid. An Eligible Director who is a non-executive chairperson, may, in a Deferral Election, make separate elections with respect to (a) Non-Executive Chair Retainer Fees and (b) Board Fees other than Non-Executive Chair Retainer Fees. An Eligible Director who defers Board Fees hereunder shall be credited with the number of Restricted Stock Units provided for by Sections 3.2 and 3.3 hereof.

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     2.4. Matching Restricted Stock Units. The Account of an Eligible Director who makes a valid Deferral Election shall be credited with Matching Restricted Stock Units in accordance with Section 3.3 hereof.

     2.5. Payment Elections. At the time an Eligible Director makes a Deferral Election, or receives an annual credit of Retainer Shares pursuant to Section 2.2 hereof, or at such other time(s) as may be authorized by the Administrator and permitted under Section 409A of the Code, a Participant shall elect, in accordance with rules specified by the Administrator, to receive payment of amounts credited to the Participant’s Account in a method of payment permitted under Article 4 hereof.

ARTICLE 3

Accounts

     3.1. Establishment of Accounts. The Company shall establish and maintain in accordance with this Article 3 a bookkeeping account for each Participant, which account shall record and reflect the Retainer Shares credited to the Participant pursuant to Section 2.2 hereof, Board Fees (other than Non-Executive Chair Retainer Fees) deferred hereunder by the Participant, Non-Executive Chair Retainer Fees deferred hereunder by the Participant, and the Matching Restricted Stock Units credited to the Participant (each such account being referred to herein as an “Account”).

     3.2. Crediting of Board Fee Deferrals. The Account of each Participant who defers Board Fees hereunder shall be credited with a number of Restricted Stock Units equal to the quotient obtained by dividing (a) the amount of Board Fees covered by the Deferral Election by (b) the Fair Market Value of a share of Common Stock as of such date.

     3.3. Matching Restricted Stock Units. A Participant’s Account shall be credited, as of the Crediting Date of the Board Fees covered by a Deferral Election made by the Participant with a number of Restricted Stock Units (“Matching Restricted Stock Units”) equal to the quotient obtained by dividing (a) 50% of the amount of Board Fees covered by the Deferral Election (excluding Non-Executive Chair Retainer Fees), by (b) the Fair Market Value of a share of Common Stock as of the Crediting Date of the Board Fees covered by the Deferral Election.

     3.4. Payments. A Participant’s Account shall be reduced by any payments made to the Participant, his or her beneficiary, estate, or representative.

     3.5. Adjustments. If any of the following events occur, the Administrator shall make appropriate adjustments with respect to Restricted Stock Units credited to a Participant’s Account: (a) any extraordinary dividend or other extraordinary distribution in respect of Common Stock (whether in the form of cash, Common Stock, other securities or other property); (b) any recapitalization, stock split (including a stock split in the form of a stock dividend), reverse stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company; or (c) any other like corporate transaction or event in respect of the Common Stock.

     3.6. Vesting of Accounts. Each Participant’s Account shall be fully vested and nonforfeitable at all times.

     3.7. Board Fees Covered by Elections. For purposes of this Article 3, the amount of Board Fees “covered” by a Deferral Election shall be the amount by which an Eligible Director’s Board Fees are to be reduced by reason of a Deferral Election. If a Deferral Election covers less than all of the Board Fees payable to an Eligible Director during a calendar year, the percentage of each payment of each type of Board Fee during the calendar year that shall be treated as being covered by the Deferral Election shall be

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equal to the percentage of total Board Fees of the same type for the calendar year that is covered by the Deferral Election.

     3.8. No Funding of Benefits. All adjustments to a Participant’s Account shall be bookkeeping entries only and shall not represent a special reserve or otherwise constitute a funding of the Company’s unsecured promise to pay any amounts hereunder. To the extent a Participant or any other person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company, and such person shall have only the unsecured promise of the Company that such payments shall be made.

ARTICLE 4

Payment of Deferred Compensation.

     4.1. Payment in Accordance with Elections. Subject to the terms of this Article 4, a Participant’s Account shall be paid (or commence to be paid) to the Participant in the form of a lump sum on or as soon as practicable following the Participant’s Separation from Service (but in no event more than 60 days after such Separation From Service).

     4.2. Form of Payment. Payment with respect to Restricted Stock Units credited to a Participant’s Account shall be paid in the form of shares of Common Stock, provided that if any such Restricted Stock Units represent a fractional share of Common Stock, then in lieu thereof, the Fair Market Value of such fractional share on the date the payment is calculated shall be paid in cash.

     4.3. Unforeseeable Emergency. The Administrator may accelerate payment of all or a portion of a Participant’s Account upon the occurrence of an Unforeseeable Emergency. The amount of such payment shall be limited to the amount reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such payment). The determination of whether a Participant has experienced an Unforeseeable Emergency and the amount reasonably necessary to satisfy the emergency need shall be based on all the facts and circumstances taking into consideration the financial resources available to the Participant and shall be made in accordance with Section 409A of the Code. If payment of less than all of a Participant’s Account is accelerated pursuant to this Section 4.3, the accelerated payment shall be deducted proportionately from all amounts credited to the Participant’s Account.

     4.4. Section 409A Mandatory Delay in Benefit Payments for Specified Employees. Notwithstanding the preceding provisions of this Article 4, to the extent required by Section 409A of the Code, the Administrator shall delay payment of the Account of a Participant who is a “specified employee” (within the meaning of Section 409A of the Code) until the earlier of (a) the date that is six months after the date of the Participant’s Separation From Service, or (b) the date of the specified employee’s death. The aggregate amount of payment(s) otherwise payable during the delay period (plus interest thereon at a rate equal to the simple average of the rate for the last four reported quarters preceding the Participant’s Separation from Service under the Vanguard U.S. Treasury Fund under the Temple-Inland Salaried Savings Plan or any successor thereto) shall be payable to the specified employee upon the expiration of the delay period.

     4.5. Payment of Dividends. Not later than 30 days after the payment date of any cash dividend or cash distribution declared on the Common Stock on or after January 1, 2008, the Company shall pay to each Participant the amount of the dividend that would have been paid to the Participant with respect to the Restricted Stock Units credited to the Participant’s Account if such Restricted Stock Units were actual issued and outstanding shares of Common Stock held by the Participant. Except as provided in this Section 4.5, no credits, distributions, or payments shall be made with respect to Restricted Stock Units credited to Participants’ Accounts to reflect cash dividends or cash distributions on Common Stock.

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     4.6. Payment Upon Death. Notwithstanding Section 4.1, in the event of a Participant’s death, the entire balance of the Participant’s Account shall be paid to the Participant (or the Participant’s beneficiary, as determined in accordance with Section 6.2 hereof) in the form of a single payment as soon as practicable after death (and in no event more than 90 days after death).

     4.7. Withholding. The Company shall have the right to deduct from any payment to be made pursuant to this Plan any federal, state or local taxes required by law to be withheld.

ARTICLE 5

Administration

     5.1. Administration. This Plan shall be administered by the Administrator. The Administrator shall have all powers necessary to carry out the provisions of this Plan, including, without reservation, the power to delegate administrative matters to other persons and to interpret this Plan in its discretion.

ARTICLE 6

Miscellaneous

     6.1. Amendment and Termination of Plan. The Company may at any time by action of the Board modify or amend, in whole or in part, any or all of the provisions of this Plan, or suspend or terminate the Plan entirely. Upon termination of this Plan, no further Deferral Elections shall be permitted and no further credits shall be made pursuant to Sections 2.2 or 3.3 hereof; provided, however, that each Participant’s Account will be maintained and paid pursuant to the provisions of this Plan and the Participant’s elections hereunder.

     6.2. Beneficiary Designation. Each Participant shall designate a beneficiary to whom the Participant’s Account shall be payable on the Participant’s death. A Participant may also designate an alternate beneficiary to receive such payment in the event that the designated beneficiary cannot receive payment for any reason. In the event no designated or alternate beneficiary can receive such payment for any reason, payment will be made to the Participant’s surviving spouse, if any, or if the Participant has no surviving spouse, then to the following beneficiaries if then living in the following order of priority: (a) to the Participant’s children (including adopted children and stepchildren) in equal shares, (b) to the Participant’s parents in equal shares, (c) to the Participant’s brothers and sisters in equal shares and (d) to the Participant’s estate. A Participant may at any time change his or her beneficiary designation. A change of beneficiary designation must be made in writing and delivered to the Administrator or its designee for such purposes. The interest of any beneficiary who predeceases the Participant will terminate unless otherwise specified by the Participant.

     6.3. Alienation of Benefits. A Participant’s rights under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment pledge, encumbrance, attachment, or garnishment by creditors of a Participant or any beneficiary.

     6.4. Restricted Stock Units Issued Under Stock Plans. Restricted Stock Units credited to Participants’ Accounts under Article 3 shall constitute the grant of “Restricted Stock Units” under the Stock Plan then in effect and under which stock-based awards are then being made, unless otherwise specified by the Administrator. Common Stock issued in payment of Restricted Stock Units credited to Participants’ Accounts hereunder shall be issued under the Stock Plan pursuant to which the applicable Restricted Stock Units were issued.

     6.5. Expenses. All expenses and costs in connection with the operation of the Plan shall be borne by the Company.

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     6.6. Rules of Construction. The singular shall include the plural unless the context clearly indicates the distinction.

     6.7. Applicable Law. This Plan shall be construed and enforced in accordance with the laws of the State of Texas except to the extent superseded by federal law.

     6.8. Headings. The headings of sections of this Plan are for convenience of reference only and shall have no substantive effect on the provisions of this Plan.

     6.9. Compliance with Section 409A of the Code. The Plan is intended to comply with the requirements of Section 409A of the Code, and the Administrator shall administer and interpret the Plan in accordance with such requirements. If any provision of the Plan conflicts with the requirements of Section 409A of the Code, the requirements of Section 409A of the Code shall supersede any such Plan provision.

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EX-10.11

Exhibit 10.11

CHANGE IN CONTROL/SEVERANCE AGREEMENT

     THIS AGREEMENT, dated July 15, 2007, is made by and between Guaranty Financial Group Inc., a Delaware corporation (the “Company”), Temple-Inland Inc., a Delaware corporation (“Temple-Inland”), and «First_Name» «Last_Name» (the “Executive”).

     WHEREAS, the Executive currently is employed by and a party to a Change in Control Agreement (the “Existing CIC Agreement”) with Temple-Inland;

     WHEREAS, Temple-Inland has determined that it is appropriate, desirable and in the best interests of Temple-Inland and its stockholders to effect (i) a spinoff to the Temple-Inland stockholders of the stock of the Company, (ii) a spinoff to the Temple-Inland stockholders of a subsidiary holding Temple-Inland’s real estate operations, and (iii) a sale of Temple-Inland’s timberland holdings to an unrelated third party;

     WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel following the effective time of the spinoff of the Company (the “Separation”);

     WHEREAS, effective as of the Separation, the parties intend for the Existing CIC Agreement to cease to be of any force or effect;

     WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and

     WHEREAS, the Board has determined that appropriate steps should be taken (i) to ensure that the Executive receive the protections afforded under the Existing CIC Agreement for the two-year period beginning on the date of the Separation and (ii) thereafter to reinforce and encourage the continued attention and dedication of members of the Company’s management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control following such two-year period;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company, Temple-Inland (solely for purposes of Section 6.1(C) hereof and the last sentence of Section 2 hereof) and the Executive hereby agree as follows:

     1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.

     2. Term of Agreement. The Term of this Agreement shall commence on the date of the Separation (the “Effective Date”) and shall continue in effect through the second anniversary of the Effective Date (such two-year period, the “Initial Term”); provided, however, that commencing on the first anniversary of the Effective Date, and on each anniversary of the Effective Date thereafter, the Term shall automatically be extended for one additional year unless, not later than 90 days prior to each such date, the Company or the Executive shall have given notice not to extend the Term; and provided, further, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than 24 months beyond the month in which such Change in Control occurred. Effective as of the Effective Date, the Existing CIC Agreement shall terminate and shall cease to be of any further force or effect and the Executive waives all rights that may have accrued thereunder.

     3. Company’s Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive’s covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. No Severance Payments shall be payable under this Agreement unless there shall have been a termination of the Executive’s employment during the Initial Term by the Company without Cause or by the Executive with Good Reason or unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof,

there shall be deemed to have been) a termination of the Executive’s employment with the Company following and within two years after a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.

     4. The Executive’s Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive’s employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive’s employment for any reason.

     5. Compensation Other Than Severance Payments.

     5.1 During the Initial Term or otherwise following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive’s employment is terminated by the Company for Disability.

     5.2 If the Executive’s employment shall be terminated for any reason during the Initial Term or otherwise following a Change in Control and during the Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the Executive’s then current salary (determined without regard to any reduction constituting Good Reason) together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.

     5.3 If the Executive’s employment shall be terminated for any reason during the Initial Term and otherwise following a Change in Control and during the Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.

     5.4 For the two-year period commencing immediately following a Change in Control and during the Initial Term, the Company agrees (A) to provide the Executive with benefits substantially similar to the material benefits provided to the Executive under any of the Company’s executive compensation (including bonus, equity or incentive compensation), pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (or, during the Initial Term, immediately after the Separation), and to provide the Executive with a number of vacation days that would be no less favorable to the Executive than the number determined in accordance with the vacation policy in effect immediately prior to the Change in Control (or, during the Initial Term, immediately after the Separation) on the basis of the Executive’s years of service with the Company, (B) to timely pay to the Executive any portion of the Executive’s current compensation, or timely pay to the Executive any material portion of an installment of deferred compensation under any deferred compensation program of the Company, and (C) not to take any other action that would directly or indirectly deprive the Executive of any material fringe benefit enjoyed by the Executive immediately prior to the Change in Control (or, during the Initial Term, immediately after the Separation), exclusive of any across the board reductions affecting all similarly situated employees.

     6. Severance Payments.

     6.1 If the Executive’s employment is terminated either during the Initial Term or otherwise following a Change in Control and within two (2) years after a Change in Control (provided that such termination of employment

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constitutes a “separation from service” within the meaning of Section 409A of the Code), in either event other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 (“Severance Payments”) and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive’s employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive’s employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, or (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person. For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.

     (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two (2) times the sum of (i) the Executive’s highest base salary as in effect during the three-year period ending immediately prior to the Date of Termination (including, if the Date of Termination occurs within three years after the Effective Date, salary paid in respect of employment by Temple-Inland or its Affiliates during such three-year period) and (ii) the Executive’s target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which occurs the Date of Termination (or, if higher, the greatest actual annual bonus in respect of any of the three preceding fiscal years (including as applicable, with respect to years ending at or before the Effective Date, annual bonuses paid by Temple-Inland)).

     (B) For the two-year period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, accidental death and dismemberment, medical and dental benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence; provided, however, that such health and welfare benefits shall be provided through an arrangement that satisfies the requirements of Sections 105 and 106 of the Code. To the extent that health and welfare benefits of the same type are received by or made available to the Executive during the two-year period following the Executive’s Date of Termination (which such benefits received by or made available to the Executive shall be reported by the Executive to the insurance company or other appropriate party in accordance with any applicable coordination of benefits provisions), the benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be made secondary to such benefits; provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.

     (C) Vesting shall accelerate and restrictions shall lapse on all unvested or restricted equity or equity-based awards in respect of either the Company or Temple-Inland held by the Executive as of the Date of Termination and each stock option to acquire common stock of the Company or Temple-Inland and each stock appreciation right in respect of either the Company or Temple-Inland held by the Executive as of the Date of Termination shall remain exercisable following the Date of Termination for the full term of such option or stock appreciation right. The Company also shall cause the subsidiary holding Temple-Inland’s real estate operations to provide that vesting shall accelerate and restrictions shall lapse on all unvested or restricted equity or equity-based awards in respect of such company held by the Executive as of the Date of Termination and that each stock option to acquire common stock of such company and each stock appreciation right in respect of such company held by the Executive as of the Date of Termination shall remain exercisable following the Date of Termination for the full term of such option or stock appreciation right.

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     (D) For purposes of determining the amount of any benefit payable to the Executive and the Executive’s right to any benefit otherwise payable under a Pension Plan, and except to the extent it would result in a duplication of benefits under Section 6.1(E) hereof, the Executive shall be treated as if he had accumulated (after the Date of Termination) twenty-four (24) additional months of service credit thereunder and had been credited during such period with compensation at the highest rate in effect during the three-year period ending immediately prior to the Date of Termination.

     (E) In addition to the benefits to which the Executive is entitled under any defined contribution Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (i) the amount that would have been contributed thereto or credited thereunder by the Company on the Executive’s behalf during the two (2) years immediately following the Date of Termination (but not including as amounts that would have been contributed or credited an amount equal to the amount of any reduction in base salary, bonus or other compensation that would have occurred in connection with such contribution or credit), determined (x) as if the Executive made the maximum permissible contributions thereto or credits thereunder during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive’s highest rate of compensation (as defined in the Pension Plan) during the three-year period ending immediately prior to the Date of Termination, and (z) without regard to any amendment to the Pension Plan made subsequent to the Effective Date and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder, and (ii) the excess, if any, of (x) the Executive’s account balance under the Pension Plan as of the Date of Termination over (y) the portion of such account balance that is nonforfeitable under the terms of the Pension Plan.

     (F) Notwithstanding any provision of any annual or long-term incentive plan (exclusive of equity-based plans) to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed bonus cycle preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) the aggregate value of all contingent incentive compensation awards to the Executive for the uncompleted period under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level, of any individual and corporate performance goals established with respect to such award, multiplied by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period (or if such fraction is greater than ¹/2, multiplied by one (1)).

     (G) The Company shall reimburse the Executive for expenses incurred for outplacement services suitable to the Executive’s position for a period of one (1) year following the Date of Termination (or, if earlier, until the first acceptance by the Executive of an offer of employment) in an amount not exceeding 15% of the sum of the Executive’s highest annual base rate of salary as in effect during the three-year period ending immediately prior to the Date of Termination (including, if the Date of Termination occurs within three years after the Effective Date, salary paid in respect of employment by Temple-Inland or its Affiliates during such three-year period), and the greatest target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which occurs the Date of Termination (or, if higher, the highest actual annual bonus in respect of any of the three preceding fiscal years (including as applicable, with respect to years ending at or before the Effective Date, annual bonuses paid by Temple-Inland)), which payment shall be made as soon as practicable but in any event within thirty (30) business days following the date of request for reimbursement. Subject to the foregoing, in no event shall any payment described in this Section 6.1(G) be made after the end of the calendar year following the calendar year in which the expenses were incurred.

     (H) For the two-year period immediately following the Date of Termination, the Company shall provide the Executive with perquisites (such as any use of a Company provided automobile, club membership fee reimbursements, income tax preparation and financial advisory services) that were applicable immediately prior to the Date of Termination or, if more favorable, immediately prior to the first occurrence of an event or circumstance constituting Good Reason, provided that in no event shall the amount

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of perquisites to which the Executive is entitled under this Section 6.1(H) for any taxable year of the Executive affect the amount of perquisites to which the Executive is entitled under this Section 6.1(H) for any other taxable year.

     6.2 Excise Tax Gross-Up.

     (A) Whether or not the Executive becomes entitled to the Severance Payments, if any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called “Total Payments”) will be subject (in whole or part) to the Excise Tax, then, subject to the provisions of subsection (B) of this Section 6.2, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.

     (B) In the event that the amount of the Total Payments does not exceed 110% of the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (the “Safe Harbor”), then subsection (A) of this Section 6.2 shall not apply and the noncash Severance Payments shall first be reduced (if necessary, to zero), and the cash Severance Payments shall thereafter be reduced (if necessary, to zero) so that the amount of the Total Payments is equal to the Safe Harbor; provided, however, that, to the extent permitted by Section 409A of the Code, the Executive may elect to have the cash Severance Payments reduced (or eliminated) prior to any reduction of the noncash Severance Payments.

     (C) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as “parachute payments” within the meaning of Section 280G(b)(2) of the Code, unless in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all “excess parachute payments” within the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section 6.2(C) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company’s calculations. If the Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of Tax Counsel with respect to the matter in dispute shall prevail.

(D) (I) In the event that (1) amounts are paid to the Executive pursuant to Section 6.2(A), (2) there is a Final Determination that the Excise Tax is less than the amount taken into account hereunder in calculating the Gross-Up Payment, and (3) after giving effect to such Final Determination, the Severance Payments are to be reduced pursuant to Section 6.2(B), the Executive shall repay to the Company, within five (5) business days following the date of the Final Determination, the Gross-Up Payment, the amount of the reduction in the Severance Payments, plus interest on the amount of such repayments at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

     (II) In the event that (1) amounts are paid to the Executive pursuant to Section 6.2(A), (2) there is a Final Determination that the Excise Tax is less than the amount taken into account hereunder in calculating the Gross-Up Payment, and (3) after giving effect to such Final Determination, the Severance Payments are not to be reduced pursuant to Section 6.2(B), the

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Executive shall repay to the Company, within five (5) business days following the date of the Final Determination, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

     (III) Except as otherwise provided in clause (IV) below, in the event there is a Final Determination that the Excise Tax exceeds the amount taken into account hereunder in determining the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall pay to the Executive, within five (5) business days following the date of the Final Determination, the sum of (1) a Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment, including a Gross-Up Payment in respect of any Excise Tax attributable to amounts payable under clauses (2) and (3) of this paragraph (III) (plus any interest, penalties or additions payable by the Executive with respect to such excess and such portion), (2) if Severance Payments were reduced pursuant to Section 6.2(B) but after giving effect to such Final Determination, the Severance Payments should not have been reduced pursuant to Section 6.2(B), the amount by which the Severance Payments were reduced pursuant to Section 6.2(B), and (3) interest on such amounts at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

     (IV) In the event that (1) Severance Payments were reduced pursuant to Section 6.2(B) and (2) the aggregate value of Total Payments which are considered “parachute payments” within the meaning of Section 280G(b)(2) of the Code is subsequently redetermined in a Final Determination, but such redetermined value still does not exceed 110% of the Safe Harbor, then, within five (5) business days following such Final Determination, (x) the Company shall pay to the Executive the amount (if any) by which the reduced Severance Payments (after taking the Final Determination into account) exceeds the amount of the reduced Severance Payments actually paid to the Executive, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code, or (y) the Executive shall pay to the Company the amount (if any) by which the reduced Severance Payments actually paid to the Executive exceeds the amount of the reduced Severance Payments (after taking the Final Determination into account), plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.

     6.3 The payments provided in subsections (A), (E) and (F) of Section 6.1 hereof shall be made as soon as practicable (but in any event not later than the fifth day) following the Date of Termination; provided that, to the extent required to satisfy the provisions of Section 409A(a)(2)(B)(i) of the Code, such payments shall be made not earlier than but as soon as practicable on or in any event within five days after (with interest at the 6-month certificate of deposit rate published in The Wall Street Journal on the Date of Termination (or if not published on that date, on the next following date when published) or, if less, the maximum rate that will avoid, if applicable, the imposition of any additional excise taxes under Section 4999 of the Code (the “409A Interest Rate”)) the date that is six (6) months after the Date of Termination (the “409A Payment Date”)). The payments provided in Section 6.2 hereof shall be made on or as soon as practicable following the day on which the Excise Tax is remitted (but not later than the end of the taxable year following the year in which the Excise Tax is incurred). If the amounts of the payments described in the preceding provisions of this Section 6.3 cannot be finally determined on or before the date payment is to be made, the Company shall pay to the Executive (or shall cause the grantor trust described in Section 6.5 to pay to the Executive) on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay (or cause to be paid) the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the 30th day after the date payment is to be made. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to

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the Executive, payable on the fifth business day after demand by the Company (together with interest at 120% of the rate provided in Section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). To the extent the benefits to be made available under subsections (B) and (H) of Section 6.1 hereof are not medical expenses within the meaning of Treas. Reg. § 1.409A-1(b)(9)(v)(B) and are not short-term deferrals within the meaning of Section 409A of the Code, then to the extent the fair market value of such benefits during the first six months following the Date of Termination exceeds two times the lesser of the Executive’s annualized compensation based upon the Executive’s annual rate of pay for services during the taxable year of the Executive preceding the year in which the Date of Termination occurs (adjusted for any increase during that year that was expected to continue indefinitely had no separation from service occurred) or the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which the Date of Termination occurs, the Executive shall pay to the Company, at the time such benefits are provided, the fair market value of such benefits, and the Company shall reimburse the Executive for any such payment not later than the fifth day following the expiration of such six-month period; provided, however, that this requirement for payment by the Executive and reimbursement by the Company shall apply solely to the extent required by Section 409A(a)(2)(B)(i) of the Code.

     6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five business days after delivery of the Executive’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require (but in no event shall any such payment be made after the end of the calendar year following the calendar year in which the expenses were incurred), provided that no such payment shall be made in respect of fees or expenses incurred by the Executive after the later of the tenth anniversary of the Date of Termination or the Executive’s death, and provided further, that, upon the Executive’s separation from service with the Company, in no event shall any additional such payments be made prior to the date that is six months after the date of the Executive’s separation from service to the extent such payment delay is required under Section 409A(a)(2)(B)(i) of the Code.

     6.5 To the extent that the payment of any amount due under subsections (A), (E) or (F) of Section 6.1 hereof is delayed by reason of Section 409A(a)(2)(B)(i) of the Code, the Company shall, on or as soon as practicable after the Date of Termination, contribute the amounts otherwise payable pursuant to subsections (A), (E) and (F) of Section 6.1 hereof, together with six months interest thereon at the 409A Interest Rate (as defined in Section 6.3 hereof), to a grantor (“rabbi”) trust of which the Executive is the sole beneficiary (subject to the claims of the Company’s creditors, as required pursuant to applicable Internal Revenue Service guidance to prevent the imputation of income to the Executive prior to distribution from the trust), pursuant to which the amounts payable pursuant to subsections (A), (E) and (F) of Section 6.1 hereof shall be payable from the trust, together with the appropriate amount of interest at the 409A Interest Rate (as defined in Section 6.3 hereof), on or as soon as practicable and in any event within five days after the Section 409A Payment Date (as defined in Section 6.3 hereof), provided that to the extent such amount is paid to the Executive by the Company, the trust shall pay such amount to the Company.

     7. Termination Procedures and Compensation During Dispute.

     7.1. Notice of Termination. During the Initial Term and otherwise after a Change in Control and during the Term, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. For purposes of this Agreement, any purported termination of the Executive’s employment shall be presumed to be other than for Cause unless the Notice of Termination includes a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the

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Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.

     7.2 Date of Termination. “Date of Termination,” with respect to any purported termination of the Executive’s employment during the Initial Term or after a Change in Control and during the Term, shall mean (i) if the Executive’s employment is terminated for Disability, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive’s duties during such 30 day period), and (ii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than 30 days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than 15 days nor more than 60 days, respectively, from the date such Notice of Termination is given, provided that, in the case of a termination by the Executive, the Company may require a Date of Termination earlier than that specified in the Notice of Termination upon payment to the Executive of the full amount of base salary that would have been paid to the Executive had the Executive continued employment between the actual Date of Termination and the Date of Termination specified in the Notice of Termination).

     7.3 Dispute Concerning Termination. If within 15 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.

     7.4 Compensation During Dispute. If a purported termination occurs during the Initial Term or otherwise following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.

     8. No Mitigation. The Company agrees that, if the Executive’s employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6.1(B) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

     9. Successors; Binding Agreement.

     9.1 The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to be obligated to perform this Agreement (whether by reason of express assumption by the successor or by operation of law) in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

     9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal

8

representatives or administrators of the Executive’s estate.

     10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address of the Executive as maintained from time to time on the payroll system of the Company and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:
1300 Mopac Expressway South
Austin, TX 78746
Attention: General Counsel

     11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by the Executive or the Company (including without limitation the Existing CIC Agreement); provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive’s employment with the Company is terminated during the Initial Term or otherwise following a Change in Control, in any case by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas without regard to its principles of conflicts of law. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.

     12. Validity.

     12.1 Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and FDIC Regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

     12.2 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

     13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

     14. Settlement of Disputes. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within 60 days after notification by the Board that the Executive’s claim has been denied.

     15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:

     (A) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the

9

Exchange Act.

     (B) “Auditor” shall have the meaning set forth in Section 6.2 hereof.

     (C) “Base Amount” shall have the meaning set forth in Section 280G(b)(3) of the Code.

     (D) “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

     (E) “Board” shall mean the Board of Directors of the Company.

     (F) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.

     (G) “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

     (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clauses (a), (b) or (c) of paragraph (III) below;

     (II) within any twenty-four (24) month period, the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;

     (III) there is consummated a merger, consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or any recapitalization of the Company (for purposes of this paragraph (III), a “Business Event”) unless, immediately following such Business Event (a) the directors of the Company immediately prior to such Business Event continue to constitute at least a majority of the board of directors of the Company, the surviving entity or any parent thereof, (b) the voting securities of the Company outstanding immediately prior to such Business Event continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such Business Event, and (c) in the event of a recapitalization, no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company or such surviving entity or any parent thereof (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the then

10

outstanding securities of the Company or such surviving entity or any parent thereof (except to the extent such ownership existed prior to the Business Event);

     (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company;

     (V) there is consummated an agreement for the sale, disposition or long-term lease by the Company of substantially all of the Company’s assets, other than (a) such a sale, disposition or lease to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale or disposition or (b) the distribution directly to the Company’s shareholders (in one distribution or a series of related distributions) of all of the stock of one or more subsidiaries of the Company that represent substantially all of the Company’s assets; or

     (VI) any other event that the Board, in its sole discretion, determines to be a Change in Control for purposes of this Agreement.

Notwithstanding the foregoing, a “Change in Control” under clauses (I) through (V) above shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of the Company as constituted immediately prior to such transaction or series of transactions.

     (H) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

     (I) “Company” shall mean Guaranty Financial Group Inc. and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.

     (J) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.

     (K) “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of six consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within 30 days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.

     (L) “Effective Date” shall have the meaning set forth in Section 2 hereof.

     (M) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

     (N) “Excise Tax” shall mean any excise tax imposed under Section 4999 of the Code.

     (O) “Executive” shall mean the individual named in the first paragraph of this Agreement.

     (P) “Existing CIC Agreement” shall have the meaning set forth in the recitals hereof.

     (Q) “Final Determination” means a final determination by the Internal Revenue Service or, if such determination is appealed, a final determination by any court of competent jurisdiction.

     (R) “Good Reason” for termination by the Executive of the Executive’s employment shall mean the occurrence (without the Executive’s express written consent) during the Initial Term (treating all references in paragraphs (I) through (IV) below to the period “immediately prior to the Change in Control” as references to “immediately after the Separation”), after any Change in Control, or prior to a Change in Control under the

11

circumstances described in clauses (i) and (ii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (IV) below to a “Change in Control” as references to a “Potential Change in Control”), of any one of the following acts by the Company, or failures by the Company to act, unless such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

     (I) a material reduction in the Executive’s authority, duties or responsibilities, which for purposes of this Agreement shall include only the assignment to the Executive of any duties substantially inconsistent with the Executive’s status as a senior executive officer of the Company or a material adverse alteration in the nature or status of the Executive’s responsibilities from those in effect immediately prior to the Change in Control (including, as applicable and without limitation, the Executive ceasing to be an executive officer of a public company);

     (II) a material diminution in base salary as in effect immediately prior to the Change in Control;

     (III) a material change in the geographic location at which the Executive must perform services, which for purposes of this Agreement shall include only the relocation of the Executive’s principal place of employment to a location more than fifty (50) miles distant from the Company’s headquarters immediately prior to the Change in Control or the Company’s requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for reasonably required travel on the Company’s business; or

     (IV) any other action or inaction that constitutes a material breach of Section 5.4 or 9.1 of this Agreement.

The Executive’s right to terminate the Executive’s employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder, provided that the Executive may not assert Good Reason in respect of any act or failure to act otherwise constituting Good Reason hereunder unless asserted in a Notice of Termination given in respect thereof within 90 days following the date of the first occurrence of such act or failure to act. Notwithstanding the foregoing provisions of this definition of “Good Reason,” the events described on Exhibit A hereto do not constitute “Good Reason” for the termination of the Executive’s employment. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.

     (S) “Gross-Up Payment” shall have the meaning set forth in Section 6.2 hereof.

     (T) “Initial Term” shall have the meaning set forth in Section 2 hereof.

     (U) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.

     (V) “Pension Plan” shall mean any nonqualified, supplemental or excess benefit pension plan maintained by the Company and any other plan or agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits, and any nonqualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company.

     (W) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

     (X) “Potential Change in Control” shall be deemed to have occurred if the event set forth in any one of

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the following paragraphs shall have occurred:

     (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

     (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

     (III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates); or

     (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

     (Y) “Retirement” shall be deemed the reason for the termination by the Executive of the Executive’s employment if such employment is terminated in accordance with the Company’s retirement policy, including early retirement, generally applicable to its salaried employees.

     (Z) “Separation” shall have the meaning set forth in the recitals hereof.

     (AA) “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.

     (BB) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.

     (CC) “Temple-Inland” has the meaning set forth in the introduction of this Agreement.

     (DD) “Term” shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).

     (EE) “Total Payments” shall mean those payments so described in Section 6.2 hereof.

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement to be effective as of the Effective Date.

GUARANTY FINANCIAL GROUP INC.
By:	Kenneth R. Dubuque
Title:	President and CEO
TEMPLE-INLAND INC.
By:	Leslie K. O’Neal
Title:	Vice President and Secretary
EXECUTIVE
«First_Name» «Last_Name»

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EXHIBIT A

PERMITTED EVENTS

For the avoidance of doubt, Good Reason shall not include any direct or indirect consequence of the establishment of any of the following compensation and benefit arrangements of the Company as of the Separation (including by virtue of the fact that such compensation and benefit arrangements may differ from those in effect at Temple-Inland before the Separation):

     1. Base salary

     2. Annual bonus and other short-term incentive benefits

     3. Savings plan (including 401(k) and supplemental plan benefits)

     4. Retirement benefits (including supplemental plan benefits)

     5. Health and other welfare benefits

     6. Long-term incentive plan benefits

For the avoidance of doubt, the Executive also may not assert Good Reason by reason of the nature of the Executive’s position and duties at the time of the Separation (including any changes from the Executive’s position and duties before the Separation). The Executive also may not assert Good Reason by reason of any relocation of the Company’s headquarters within the Austin, Texas metropolitan area during the Initial Term.

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EX-10.13

Exhibit 10.13

GUARANTY FINANCIAL GROUP INC.
RESTRICTED STOCK AGREEMENT

EMPLOYEE:
AWARD DATE:	, 200
TOTAL NUMBER OF SHARES OF
RESTRICTED STOCK:
VESTING SCHEDULE/RESTRICTED PERIOD:	[Number of Shares] on                     , 2009
	[Number of Shares] on                     , 2010
	[Number of Shares] on                     , 2011
	[Number of Shares] on                     , 2012

          This Agreement is entered into between GUARANTY FINANCIAL GROUP INC., a Delaware corporation (“Guaranty”) and the Employee named above, and is an integral and inseparable term of Employee’s employment as an employee of Guaranty or an Affiliate. In consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, Guaranty and the Employee hereby agree as follows:

1.	This Agreement and the award hereunder is subject to all the restrictions, terms and provisions of the Guaranty Financial Group Inc. 2007 Stock Incentive Plan (the “Plan”) which are herein incorporated by reference and with which the Employee hereby agrees. Terms used in this Agreement that are not otherwise defined herein shall have the same meaning as set forth in the Plan.
2.	Subject to the terms of the Plan and this Agreement, Guaranty hereby awards to the Employee the number of shares of Restricted Stock stated above (the “Restricted Stock”). Except as otherwise provided by the Plan or this Agreement, the vesting period for the Restricted Stock awarded hereunder shall be as stated above. However, no such Restricted Stock that otherwise would become vested on a particular date shall vest in any year that the after-tax earnings of Guaranty are less than $10,000,000.00. In such case, such Restricted Stock that would become vested on such particular date shall immediately be forfeited. The Management Development and Executive Compensation Committee (the “Committee”) shall certify the attainment of the after-tax earnings performance goal.
3.	The Restricted Stock will be represented by a book entry credited in the name of the Employee. The Employee will have the right to vote the Restricted Stock. The Employee will receive a cash payment equal to the amount of all regular cash dividends per share payable to holders of Common Stock of record on and after the issuance of the Restricted Stock until the vesting or forfeiture thereof, whichever is earlier.
4.	Except as otherwise provided in the Plan, the vesting of the Restricted Stock shall occur only if the Employee on the vesting date has continuously been an employee of Guaranty or an Affiliate since the date of this Agreement. Subject to the other terms and provisions of the Plan and this Agreement, upon the expiration of the vesting period, the total number of shares of Restricted Stock shall become vested. Any shares of Restricted Stock which shall not have so vested on the vesting date shall be forfeited to Guaranty, and the Employee shall not thereafter have any rights (including dividend and voting rights), powers or privileges with respect to the shares of Restricted Stock so forfeited. The Employee agrees that any federal, state or local taxes of any kind required by law to be withheld with respect to any shares of Restricted Stock or the cash payments in lieu of dividends thereon shall be withheld and applied to the satisfaction of such taxes. Guaranty will issue and deliver to the Employee instruments representing the vested securities (or balance thereof after withholding) as soon as practicable after the vesting date.
5.	Notwithstanding any other provision of this Agreement to the contrary, if the Employee dies, incurs a permanent disability or a Change in Control occurs during the vesting period and prior to the vesting date, and assuming the Employee has continuously been an employee of Guaranty or an Affiliate since the date of this Agreement, then the number of shares of Restricted Stock that would become vested on a particular future date shall become vested as of the date of termination as a result of death or disability or upon the Change in Control; provided, however, that this acceleration of vesting shall not affect any Restricted Stock previously forfeited in accordance with the provisions of paragraph 2, and such previously forfeited Restricted Stock shall remain forfeited. For these purposes, “Change in Control” shall mean the event set forth in any one of the following paragraphs shall have occurred:

(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Guaranty (not including in the securities beneficially owned by such Person any securities

	acquired directly from Guaranty or its Affiliates) representing 20% or more of the combined voting power of Guaranty’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clauses (a), (b) or (c) of paragraph (3) below;
(2)	within any twenty-four (24) month period, the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board of Directors of Guaranty (the “Board”): individuals who, on the Award Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Guaranty) whose appointment or election by the Board or nomination for election by Guaranty’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;
(3)	there is consummated a merger, consolidation of Guaranty or any direct or indirect subsidiary of Guaranty with any other corporation or any recapitalization of Guaranty (for purposes of this paragraph (3), a “Business Event”) unless, immediately following such Business Event (a) the directors of Guaranty immediately prior to such Business Event continue to constitute at least a majority of the board of directors of Guaranty, the surviving entity or any parent thereof, (b) the voting securities of Guaranty outstanding immediately prior to such Business Event continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Guaranty or any subsidiary of Guaranty, at least 60% of the combined voting power of the securities of Guaranty or such surviving entity or any parent thereof outstanding immediately after such Business Event, and (c) in the event of a recapitalization, no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Guaranty or such surviving entity or any parent thereof (not including in the securities Beneficially Owned by such Person any securities acquired directly from Guaranty or its Affiliates) representing 20% or more of the combined voting power of the then outstanding securities of Guaranty or such surviving entity or any parent thereof (except to the extent such ownership existed prior to the Business Event);
(4)	the shareholders of Guaranty approve a plan of complete liquidation or dissolution of Guaranty;
(5)	there is consummated an agreement for the sale, disposition or long-term lease by Guaranty of substantially all of Guaranty’s assets, other than (a) such a sale, disposition or lease to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of Guaranty in substantially the same proportions as their ownership of Guaranty immediately prior to such sale or disposition or (b) the distribution directly to Guaranty’s shareholders (in one distribution or a series of related distributions) of all of the stock of one or more subsidiaries of Guaranty that represent substantially all of Guaranty’s assets; or
(6)	any other event that the Board, in its sole discretion, determines to be a Change in Control for purposes of this Agreement.
	Notwithstanding the foregoing, a “Change in Control” under paragraphs (1) through (5) above shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Guaranty immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of Guaranty as constituted immediately prior to such transaction or series of transactions.

For purposes of this definition of “Change in Control”:

(1)	“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(2)	“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

(3)

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(4)

“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Guaranty or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Guaranty or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of Guaranty in substantially the same proportions as their ownership of stock of Guaranty.

6.	Nothing in the Plan or this Agreement shall be construed to give the Employee any right to be awarded any additional Restricted Stock awards other than in the sole discretion of the Committee or to confer on the Employee any right to continue in the employ of Guaranty or any of its Affiliates or to interfere in any way with the right of Guaranty or an Affiliate to terminate the employment of the Employee at any time, with or without cause, notwithstanding the possibility that the Restricted Stock may thereby be forfeited entirely. The Employee agrees that the award of the Restricted Stock hereunder is special incentive compensation and that it will not be taken into account as “salary” or “compensation” or “bonus” in determining the amount of any payment under any retirement or profit-sharing plan of Guaranty or any of its Affiliates. In addition, the Employee agrees that such award will not be taken into account in determining the amount of any life insurance coverage, or short or long-term disability coverage provided by Guaranty or its Affiliates.
7.	No right or benefit under the Plan or this Agreement shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit under the Plan or this Agreement shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. If any Employee or beneficiary under the Plan or this Agreement should become bankrupt or attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge any right or benefit under the Plan or this Agreement, then such right or benefit shall, in the discretion of the Committee, cease and terminate, and in such event, the Committee in its discretion may hold or apply the same or any part thereof for the benefit of the Employee or his or her beneficiary, spouse, children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper.
8.	The Committee may from time to time modify or amend this Agreement in accordance with the provisions of the Plan. In the event of an inconsistency between any provision of the Plan and this Agreement, the terms of the Plan shall control. This Agreement shall be binding upon and inure to the benefit of Guaranty and its successors and assigns and shall be binding upon and inure to the benefit of the Employee and his or her legatees, distributees and personal representatives. Appeal from, or confirmation of, any arbitration award under this paragraph may be made to any court of competent jurisdiction under standards applicable to appeal or confirmation of arbitration awards generally. This Agreement is effective as of the Grant Date, but shall expire sixty (60) days after the Grant Date if the Employee (or his or her agent or attorney) does not execute and deliver a copy of this Agreement to Guaranty on or prior to that date, except as otherwise set forth in the Plan. This Agreement shall be governed by and construed in accord with federal law, where applicable, and otherwise with the laws of the State of Texas.

          IN WITNESS WHEREOF, Guaranty has caused this Agreement to be duly executed by its officer thereunto duly authorized, and the Employee has hereunto set his or her hand, all as of the Award Date stated above.

GUARANTY FINANCIAL GROUP INC.

EX-10.14

Exhibit 10.14

GUARANTY FINANCIAL GROUP INC.
RESTRICTED STOCK AGREEMENT

EMPLOYEE:
AWARD DATE:	, 200
TOTAL NUMBER OF SHARES OF RESTRICTED STOCK:

VESTING SCHEDULE/RESTRICTED PERIOD:

Entire percentage of the Award on the third anniversary of the Award Date, payable as follows:

Three-Year Average
After-Tax Return	Percentage of the
on Equity	Restricted Stock
Performance*	Earned
13%	120%
12%	100%
10%	75%
8%	50%
Less than 8%	0%

* The Management Development and Executive Compensation Committee of Guaranty Financial Group Inc. (the “Committee”) shall certify following the end of the three-year period the attainment of and specify the after-tax return on equity performance goal achieved, if any.

     This Agreement is entered into between GUARANTY FINANCIAL GROUP INC., a Delaware corporation (“Guaranty”) and the Employee named above, and is an integral and inseparable term of Employee’s employment as an employee of Guaranty or an Affiliate. In consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, Guaranty and the Employee hereby agree as follows:

1.	This Agreement and the award hereunder is subject to all the restrictions, terms and provisions of the Guaranty Financial Group Inc. 2007 Stock Incentive Plan (the “Plan”) which are herein incorporated by reference and with which the Employee hereby agrees. Terms used in this Agreement that are not otherwise defined herein shall have the same meaning as set forth in the Plan.
2.	Subject to the terms of the Plan and this Agreement, Guaranty hereby awards to the Employee the number of shares of Restricted Stock stated above (the “Restricted Stock”). Except as otherwise provided by the Plan or this Agreement, the vesting period for the Restricted Stock awarded hereunder shall be as stated above.
3.	The Restricted Stock will be represented by a book entry credited in the name of the Employee. The Employee will have the right to vote the Restricted Stock. The Employee will receive a cash payment equal to the amount of all regular cash dividends per share payable to holders of Common Stock of record on and after the issuance of the Restricted Stock until the vesting or forfeiture thereof, whichever is earlier.
4.	Except as otherwise provided in the Plan, the vesting of the Restricted Stock shall occur only if the Employee on the vesting date has continuously been an employee of Guaranty or an Affiliate since the date of this Agreement. Subject to the other terms and provisions of the Plan and this Agreement, upon the expiration of the vesting period, the total number of shares of Restricted Stock as determined under the table above shall become vested. Any shares of Restricted Stock which shall not have so vested on the vesting date shall be forfeited to Guaranty, and the Employee shall not thereafter have any rights (including dividend and voting rights), powers or privileges with respect to the shares of Restricted Stock so forfeited. The Employee agrees that any federal, state or local taxes of any kind required by law to be withheld with respect to any shares of Restricted Stock or the cash payments in lieu of dividends thereon shall be withheld and applied to the satisfaction of such taxes. Guaranty will issue and deliver to the Employee instruments representing the vested securities (or balance thereof after withholding) as soon as practicable after the vesting date.
5.	Notwithstanding any other provision of this Agreement to the contrary, if the Employee dies, incurs a permanent disability or a Change in Control occurs during the vesting period and prior to the vesting date, and assuming the Employee has continuously been an employee of Guaranty or an Affiliate since the date of this Agreement, then the total number of shares

of Restricted Stock shall become vested as of the date of termination as a result of death or disability or upon the Change in Control. For purposes of vesting upon a Change in Control, the vesting of the Percentage of Restricted Stock Earned as determined under the table above shall be at the 100% level. For these purposes, “Change in Control” shall mean the event set forth in any one of the following paragraphs shall have occurred:

(1)	any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Guaranty (not including in the securities beneficially owned by such Person any securities acquired directly from Guaranty or its Affiliates) representing 20% or more of the combined voting power of Guaranty’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clauses (a), (b) or (c) of paragraph (3) below;
(2)	within any twenty-four (24) month period, the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board of Directors of Guaranty (the “Board”): individuals who, on the Award Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Guaranty) whose appointment or election by the Board or nomination for election by Guaranty’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;
(3)	there is consummated a merger, consolidation of Guaranty or any direct or indirect subsidiary of Guaranty with any other corporation or any recapitalization of Guaranty (for purposes of this paragraph (3), a “Business Event”) unless, immediately following such Business Event (a) the directors of Guaranty immediately prior to such Business Event continue to constitute at least a majority of the board of directors of Guaranty, the surviving entity or any parent thereof, (b) the voting securities of Guaranty outstanding immediately prior to such Business Event continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Guaranty or any subsidiary of Guaranty, at least 60% of the combined voting power of the securities of Guaranty or such surviving entity or any parent thereof outstanding immediately after such Business Event, and (c) in the event of a recapitalization, no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Guaranty or such surviving entity or any parent thereof (not including in the securities Beneficially Owned by such Person any securities acquired directly from Guaranty or its Affiliates) representing 20% or more of the combined voting power of the then outstanding securities of Guaranty or such surviving entity or any parent thereof (except to the extent such ownership existed prior to the Business Event);
(4)	the shareholders of Guaranty approve a plan of complete liquidation or dissolution of Guaranty;
(5)	there is consummated an agreement for the sale, disposition or long-term lease by Guaranty of substantially all of Guaranty’s assets, other than (a) such a sale, disposition or lease to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of Guaranty in substantially the same proportions as their ownership of Guaranty immediately prior to such sale or disposition or (b) the distribution directly to Guaranty’s shareholders (in one distribution or a series of related distributions) of all of the stock of one or more subsidiaries of Guaranty that represent substantially all of Guaranty’s assets; or
(6)	any other event that the Board, in its sole discretion, determines to be a Change in Control for purposes of this Agreement.
	Notwithstanding the foregoing, a “Change in Control” under paragraphs (1) through (5) above shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Guaranty immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in one or

more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of Guaranty as constituted immediately prior to such transaction or series of transactions.

For purposes of this definition of “Change in Control”:

(1)	“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(2)	“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(3)	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(4)	“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Guaranty or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Guaranty or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of Guaranty in substantially the same proportions as their ownership of stock of Guaranty.

6. Nothing in the Plan or this Agreement shall be construed to give the Employee any right to be awarded any additional Restricted Stock awards other than in the sole discretion of the Committee or to confer on the Employee any right to continue in the employ of Guaranty or any of its Affiliates or to interfere in any way with the right of Guaranty or an Affiliate to terminate the employment of the Employee at any time, with or without cause, notwithstanding the possibility that the Restricted Stock may thereby be forfeited entirely. The Employee agrees that the award of the Restricted Stock hereunder is special incentive compensation and that it will not be taken into account as “salary” or “compensation” or “bonus” in determining the amount of any payment under any retirement or profit-sharing plan of Guaranty or any of its Affiliates. In addition, the Employee agrees that such award will not be taken into account in determining the amount of any life insurance coverage, or short or long-term disability coverage provided by Guaranty or its Affiliates.

7. No right or benefit under the Plan or this Agreement shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit under the Plan or this Agreement shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. If any Employee or beneficiary under the Plan or this Agreement should become bankrupt or attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge any right or benefit under the Plan or this Agreement, then such right or benefit shall, in the discretion of the Committee, cease and terminate, and in such event, the Committee in its discretion may hold or apply the same or any part thereof for the benefit of the Employee or his or her beneficiary, spouse, children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper.

8. The Committee may from time to time modify or amend this Agreement in accordance with the provisions of the Plan. In the event of an inconsistency between any provision of the Plan and this Agreement, the terms of the Plan shall control. This Agreement shall be binding upon and inure to the benefit of Guaranty and its successors and assigns and shall be binding upon and inure to the benefit of the Employee and his or her legatees, distributees and personal representatives. Appeal from, or confirmation of, any arbitration award under this paragraph may be made to any court of competent jurisdiction under standards applicable to appeal or confirmation of arbitration awards generally. This Agreement is effective as of the Grant Date, but shall expire sixty (60) days after the Grant Date if the Employee (or his or her agent or attorney) does not execute and deliver a copy of this Agreement to Guaranty on or prior to that date, except as otherwise set forth in the Plan. This Agreement shall be governed by and construed in accord with federal law, where applicable, and otherwise with the laws of the State of Texas.

     IN WITNESS WHEREOF, Guaranty has caused this Agreement to be duly executed by its officer thereunto duly authorized, and the Employee has hereunto set his or her hand, all as of the Award Date stated above.

GUARANTY FINANCIAL GROUP INC.

EX-21.1

Exhibit 21

GUARANTY FINANCIAL GROUP INC.
SUBSIDIARIES
All Subsidiaries are wholly-owned unless noted otherwise.

	Jurisdiction of
Subsidiary Name	Incorporation
Guaranty Financial Group Inc.	Delaware
Guaranty Group Ventures Inc.	Delaware
Guaranty Holdings Inc. l	Delaware
Guaranty Bank	Federal
Guaranty Plus Holding Company	Nevada
Guaranty Plus Properties Inc. — l	Delaware
Guaranty Insurance Services, Inc.	Texas
Premium Acceptance Corporation	Texas
Guaranty California Insurance Services Inc.	California
RWHC, Inc.	Nevada
TMF Holding Inc.	Delaware
Texas Mezzanine Fund, Inc.	Texas
Guaranty Business Credit Corporation	Delaware
American Finance Group, Inc.	Delaware
Guaranty Group Capital Inc.	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement on Form S-8 No. 333-148373, pertaining to the Guaranty Financial Group 2007 Stock Incentive Plan of our reports dated February 29, 2008, with respect to the consolidated financial statements of Guaranty Financial Group Inc. and the effectiveness of internal control over financial reporting of Guaranty Financial Group Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/ ERNST & YOUNG LLP

Austin, Texas

February 29, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)

I, Kenneth R. Dubuque, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Guaranty Financial Group Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Kenneth R. Dubuque
Kenneth R. Dubuque
President and Chief Executive Officer
Date: February 29, 2008

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)

I, Ronald D. Murff, certify that:

1. I have reviewed this Annual Report on Form 10-K of Guaranty Financial Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Ronald D. Murff
Ronald D. Murff
Chief Financial Officer
Date: February 29, 2008

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Kenneth R. Dubuque, Chief Executive Officer of Guaranty Financial Group Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Annual Report on Form 10-K fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Guaranty Financial Group Inc.

/s/ Kenneth R. Dubuque
Kenneth R. Dubuque
President and Chief Executive Officer

Date: February 29, 2008

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Ronald D. Murff, Chief Financial Officer of Guaranty Financial Group Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Annual Report on Form 10-K fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Guaranty Financial Group Inc.

/s/ Ronald D. Murff
Ronald D. Murff
Chief Financial Officer

Date: February 29, 2008